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Tuesday, August 21, 2012

Financial bubble bath



Anyone remember the Internet bubble? Wasn’t that a wacky fun time? Kids with any sort of crazy idea and the ability to sling a little computer code had millions thrown at them. Most of the money was pissed away, of course. Nice headquarters, on-site chair massage, skateboards in the office, junk food on demand -the sort of business one would expect from college drop outs.

The beauty of it was there were thousands of bright kids working crazy hacker hours for small money and big stock option promises. A few were smart enough to cash out and buy nice things in the real world. Most didn’t and saw all their work disappear into smoke and vapor.

We never learn. Hard on the heels of that bubble came the housing bubble. Not as much fun as the Internet bubble, but a more direct appeal to naked greed. Turn your house into a giant ATM! Exotic Vacations! Buy a honking big SUV! Get an even bigger house you can’t afford!

Anyone with a bit of common sense could see both of these bubbles for what they were -bubbles. A few good ideas did well (Amazon) others not so well. Whoever thought buying dog food on the ‘net was a good idea? Some companies could not even clearly state what the heck they were trying to sell. Most likely because they were trying to sell stock and promises.

Housing could not go up forever, especially at the crazy break neck speeds they were going up. Rising values only papered over bad loans for a relatively short time. Reality had to intrude sooner or later. When the music stopped, as it always does, there weren’t nearly enough chairs to go around. Quite a few people discovered that the “Greater Fool,” was not someone else but them.

Speculative bubbles have a certain smell to them. After experiencing a few bursting bubbles in recent history, a person’t nose gets educated. Anyone else out there getting a whiff of something? Are there people with vested interests saying things will go on like this for a lot longer? Are there cheer leaders saying that this time things are different?

The thing is, I’m not real sure what speculative bubble is giving off the foul smell. Something doesn’t feel right, but what is it?

Well there’s the whole frack the gas bubble that’s getting a little long in the tooth. It’s a weird little investment bubble, but where else can people put there money with any hope of double digit return? It might be popular with the institutional investors, but the average Joe isn’t overly inspired by it. The natural gas bubble smells, but it’s not enough to account for all the weird bubble smell out there -not by half.

So what is it?

I’m guessing that the next bubble is is a huge over investment in money itself. Money creation has gotten easier and easier. The printing pressings don’t even have to run. Ones and zeros in a computer are nearly free to create. With money so easy to create, it’s no wonder they make so much of it.
There are two economies out there. There’s the economy where things are made, traded, grown, goods exchanged and services preformed. Then there’s the fake economy of investment vehicles, derivatives and the like. That wouldn’t be a problem except that the fake and real economy use the same currency. That’s just weird. It’s like play money can be used to buy real things. Of course, it’s all well and good as long as most of the play money stays in make believe land. Problem is, I think that the make believe money itself is a bubble. When it bursts, people are going to have to draw on real world assets to cover their play money bets.

When that happens, the currency collapses. The financial system breaks and shuts down. It’s happened before. We tend to look at the last big depression of the 1930s. While there are lessons to learn there, we may actually have more in common with the whole slew of panics that took place in the 19th century. Most, of not all, of those panics had speculative bubbles that set them off. It’s a deep bit of history worth exploring.

So my bet is on some sort of currency collapse. Does the Euro look like a good brand? How about the dollar? As long as world trade and especially petroleum trading took place in dollars, a nation needed a pile of them. That’s not quite so true anymore. Trades are being made in everything from straight barter agreements to the use of precious metals. Don’t worry much about the sounder smaller currencies. When the big boys go belly up, it’s a game changer.

I’m I worried? Just a little. The big question is timing. When will the next bubbles burst? I’m surprised the game has kept going for as long as it has. Of course, nothing lasts forever.

-Sixbears







16 comments:

  1. If that's the post you were having trouble with, I'm glad you persevered and got it done, it was worth the wait...

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  2. Man, it always seems like the bankers make out like bandits, no matter what happens. In the 70's, they talked a whole lot of farmers into 'Get Big Or Get Out', going into debt buying high priced machinery. When inevitable drought occurs, farmer can't pay off the loan - farm and machinery go to banker.

    During the 90's, people are convinced to buy a large home and selling off 20 years later making an obscene profit. Only it never occured to them that maybe not everyone can afford a $800,000 house. And even if they could, WHY would they ? Again, banker wins.

    Banks go bankrupt or threaten they are about to, making sure they get paid and take as much as they can before making the report. High risk ventures made by them got them in their predicament. And they get a bail-out as a reward for being bad at their job. Again - bankers win.

    You know, if things get unraveled, I'm betting more than a few bankers had better have long fast legs, a lead boot and a fast car if they want to live. Because some people tend to hold a grudge. I'm sure more than a few lawyers and judges likewise may feel the same pressure.

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    1. Now why would anyone have bad feelings toward the people who've made a career of screwing them over?

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  3. When you asked what the next bubble to pop would be I immediately thought "the Ponzi scheme economy". Like you said, it's just like the "dot bomb" bubble. Filled with nothing but hot air and promises, but nothing concrete to hold it up.

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    1. Glad I'm not the only one to see it that way.

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  4. Very interesting and true post. As long as I live on this tact of land and since I don't owe anything to anybody, I feel I could survive OK without money. But then how would I pay the real-estate taxes?

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    1. How would anyone else pay taxes? Things would fall apart pretty quick on the government side of the equation.

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    2. Phyllis (N/W Jersey)August 21, 2012 at 1:03 PM

      Bingo! You really don't own the land and never will - the State does and will take it when you can't pay their 'fee'.

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    3. The problem with land is that you can't hide it or move it. They always know where to find you.

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  5. The only real creation of wealth has always been agriculture mining manufacturing fishing and logging.MOst other things is value added to these.We have damn little of the basics as a percent of GDP.The only way for banks to make huge profits is with money manipulation and a bubble bust cycle.Your post is spot on.Bankers hate the basic economy they profit little from it but workers do.What happens when the dollar collapses our kids get to die forcing others to accept them

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    1. Imagine if we were all smart enough to not send our kids out to die?

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  6. you got to see this, it is your dream. http://editorial.autos.msn.com/14-extreme-campers-built-for-off-roading?icid=autos_3335#10

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    1. Nice vehicle porn. I think my ambulance/motorhome/veggie burner fits in nicely. My ability to use alternative fuels gives me an edge. While not a 4X4, good tires and high ground clearance certainly keep me moving.

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  7. Good post with a lot of truth, my friend!

    Luckily, not many of us have enough extra cash to get in on the "Next big thing!"

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    1. That's because most of normal humans have to live in the real economy. We've squandered all our investment money on food and shelter.

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