Monday, December 4, 2017

The Sound of Bursting Bubbles part I

The next economic downturn is going to be an interesting one.

When the real estate bubble burst in 2008, almost none of the bad actors took their lumps. Even blatantly criminal financial criminal activities were rarely and only sporadically punished. In a demonstration of massive political power, the banks turned private risk into public debt. Politicians who voiced opposition to the take over had their political careers destroyed.

Since then the hold of corporations on the levers of government have only gotten stronger. That's how tax bills with 75% disapproval ratings get passed. Corporations and the wealthy one tenth of one percent are doing quite well.

It's not going to last. There are signs that we are in another financial bubble. The stock market is one indicator. High prices are not justified by real earnings. Bitcoin has grown at a rate fast enough to cause nose bleeds. Even some real estate markets have gotten out of hand. Just to make things interesting, the laws that are supposed to protect the public have gotten even weaker.

There are also some major disruptions to the markets that fundamentally change the way markets work. Two big ones are manufacturing and energy. Even the Chinese have embraced automation as it out performs their low wages. It's worse in higher wage countries. Good manufacturing jobs will continue to disappear.

Fossil fuel markets are in disarray. There are some huge changes happening. Fracking has hurt traditional oil producers causing political upset. It's one of the factors behind the shake up in Saudi Arabia and political tension in Russia. Right now it's about the same price to build a wind or solar farm than it is to build a coal plant. If you go with wind or solar, your energy is then free. With a coal plant you still have to buy the coal. Alternative energy is still getting cheaper too.

One of the last big hold outs for fossil fuel has been transportation. Most people don't realize it, but electric cars and trucks will take over the market much faster than predicted. The technology is just about ready for prime time. Lower operating costs is going to be the driving force for the switch over. Electric vehicles will prove to be reliable and inexpensive to maintain.

Another thing that will have to be dealt with is the fact that people have less and less disposable money to spend. Millenials get a lot of flack for “destroying” certain parts of the economy. They aren't buying cars or houses in large enough numbers. Even restaurant chains are blaming them for their troubles. The fundamental problem for young people is that they don't have any money. They are burdened by huge student loans for educations that fail to provide high wages.

That's just a quick overview of the situation. The point is that the world markets will go through some upsetting times. We may be looking at a time of change as unsettling or even more disruptive than the Russian Revolution of a hundred years ago.

Tomorrow: how do we cope?



  1. Those who try to live like their great-grandparents will survive. Those who don't will have their worlds come crashing down around their ears.

  2. My son-in-law says the next biggest industry to be hit is truck driving. With all the automation/self driving vehicles it just may put a lot of truck driver out of work. your thoughts?

    1. Labor is something like the second biggest expense,after fuel,for the trucking industry. There is huge pressure for self driving trucks. I think you son-in-law is right.

  3. Trucking hit the skids with de-regulation. Since then anyone who has a license thinks he can do the job, and those with the trailing and skills to do it properly are undercut in price.

    1. In the 70's a well trained driver could make a really good living. Those days are over. There is no longer much freedom on the open road either. GPS tracks their every move.