Europe’s Financial Crisis: A Short Guide to How the Euro Fell Into Crisis, and the Consequences for the World

Chapter 9. Risk-On, Risk-Off Markets

Without due recognition of crowd-thinking (which often seems crowd-madness) our theories of economics leave much to be desired. It is a force wholly impalpable—perhaps little amenable to analysis and less to guidance—and yet, knowledge of it is necessary to right judgments on passing events.

—Bernard Baruch, American financier, stock-market speculator, statesman, and political consultant, writing in 1934

The 2009 rally in U.S. stocks was the most impressive in a century, and not even the Eurozone crisis could throw it into reverse. But this was achieved amid record prices for gold and treasury bonds, leaving many to fear it had been achieved only through government intervention and monetary debasement.

The ...