Nobel Laureate Economist Robert Shiller says that the world’s economy remains mired in “a vicious circle of despair” seven years after the 2008 global financial crisis.
“Fear causes individuals to restrain their spending and firms to withhold investments; as a result, the economy weakens, confirming their fear and leading them to restrain spending further,” wrote Shiller, a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center for Finance.
“The downturn deepens, and a vicious circle of despair takes hold. Though the 2008 financial crisis has passed, we remain stuck in the emotional cycle that it set in motion,”
he wrote in his Project Syndicate blog.
“It is a bit like stage fright. Dwelling on performance anxiety may cause hesitation or a loss of inspiration. As fear turns into fact, the anxiety worsens – and so does the performance. Once such a cycle starts, it can be very difficult to stop.”
To be sure, other notable market experts have recently claimed that fear is actually pushing the stock market higher — and among the most noteworthy is former Dallas Federal Reserve President Richard Fisher.
"Are we vulnerable in my personal opinion to a significant equity market correction? I do believe we are, and the reason for that is people have gotten lazy. They've depended totally on the Fed," he recently told
CNBC.
What he means is that investors are dependent upon the Fed's massive easing program for the stock market's strength.
The Fed has kept its federal funds rate target a record low of zero to 0.25 percent since December 2008. But many analysts expect the central bank to begin raising rates in September.
"As the economy improves, things are going to change," Fisher said. "Over time the [Fed] will engineer normalization [of policy], however long that takes. And I think the market should get prepared for that."
He does see a correction of "substantial magnitude" taking place, but the Fed shouldn't react.
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