October 24, 2006

Those who do not learn from history are doomed to repeat it


Bubble:
1: a hollow globule of gas (e.g., air or carbon dioxide)
2: a speculative scheme that depends on unstable factors that the planner cannot control; "his proposal was nothing but a house of cards"; "a real estate bubble"

Economic Bubble:
An economic bubble occurs when speculation in a commodity causes the price to increase, thus producing more speculation. The price of the good then reaches absurd levels and the bubble is usually followed by a sudden drop in prices, known as a crash.

Economic bubbles are generally considered to be bad things because they cause misallocation of resources into non-productive uses. In addition, the crash which follows an economic bubble can destroy a large amount of wealth and cause continuing economic malaise as was the case of the Great Depression in the 1930s and Japan in the 1990s.

37 comments:

Lying Larry K. said...

But.. but.. but.. there can be no such thing as a bubble because markets are efficient and rational!

Anonymous said...

Hopefully, the oncoming economic recession/depression will be in full swing long before Bush leaves office. That way, Bush will get the blame he deserves for destroying our economy.

keith said...

Yeah, this time will be different, we'll get that "soft landing" and even though trillions of $$$ of paper wealth were created in a speculative mania, this time we'll be able to keep all the gains

Yeah, right.

Anonymous said...

It's all Clinton's fault, what a loser.

skytrekker said...

Well we still have a housing bubble- proven by the low affordability rates- but now we also have a stock market bubble- wonderful! More speculation caused by the FED being up the republican party and Bush's anus to keep them in power with the spigot of liquidity flowing- when this ends-and it will- Bernanke will be in the unemployment line- and his mentor Greenspan will be vilified forever.

kilobar said...

There is far too much debt and liquidity in the system for this economy to be sustainable. The big deflation is right around the corner.

Alan P. said...

What do you people want? Bush is doing a good job.

honica jewinski said...

Skytrekker, I now believe that our current regime will just keep printing and printing to keep us afloat. After 08 however, when the next lucky winner is in office, we will all have hell to pay (all of us mere mortals anyway). Don't get your hopes up about bernanke or greeny the sheeny though, they, along with the rest of their fellow travelers have their private numbered swiss bank accounts loaded to the gills. They won't get hurt a bit.

trailer trash said...

"Those who do not learn from history are doomed to repeat it"


Nonsense!

Suzanne researched this!

GrandInquisitor said...

Equity markets look very strong going into year end. It seems they are shaking off this bubble talk fairly easily.

The S&P is up 17% in the last 12 months which makes this a banner year. With the equity markets being the leading indicator that they are, it becomes more unlikely with each passing day that a housing crash scenario will occur. FED smoke and mirrors may soon become reality.

Do HP'ers think the market is wrong?

devestment said...

Look back at the California real estate bubble of the early 90's. The stock market performed very well in this period as money left real estate. The actual figures for price adjustment in the 90's bubble are about -45%, not the published -25%. I was there, lost 45% on a house and watched as houses sold at 55% of peak values. I dare you to look at a DOW chart for this same period when housing lost 45% in Los Angeles. The media figures lie. I was there and saw it with my own eyes.

History is clearly repeating itself.

Anonymous said...

Anonymous said...
Hopefully, the oncoming economic recession/depression will be in full swing long before Bush leaves office. That way, Bush will get the blame he deserves for destroying our economy.

Tuesday, October 24, 2006 9:27:23 AM
------------

they'll still blame Clinton.

Anonymous said...

Hey! Where did that M3 go??

Anonymous said...

Housing is THE definition of a non-productive asset.

HAHA, burn, house, BURN!

Anonymous said...

Even if RE is relatively bearish (minus 10-20% from '05 peaks) but not fully crashing from '07 to '08, the fed/banking system will continue to flood the markets with liquidity to hold off the collapse for as long as possible.

I think the real wiped out will be in '09 and beyond. That's when we're in territory where investors, owners, etc lose hope in RE holding up despite all the shenanigans behind the scenes. That's the world that HPers are looking for.

FlyingMonkeyWarrior said...

Adam Smith quote from the book The Money Game:

“We are at a wonderful ball where the champagne sparkles in every glass, and soft laughter falls upon the summer air. We know at some moment the black horsemen will come shattering through the terrace doors, wreaking vengeance and scattering the survivors. Those who leave early are saved, but the ball is so splendid no one wants to leave while there is still time, so everyone keeps asking, what time is it? But none of the clocks have hands.”


my comment: Bubbles

Anonymous said...

Let's see now,

1) M3 is growing at 10%, check,

2) The BoJ is loaning at 0% again, check

3) Unemployment is at a record low, check

4) Consumer spending is fine, check

5) Corporations have so much cash, they are buying back shares, check


Yes, it certainly looks like an economic meltdown is imminent...

Anonymous said...

"Hey! Where did that M3 go??"

It's right here:

http://www.nowandfutures.com/key_stats.html


If the Fed opened the valve any wider, the handle would break off.

FlyingMonkeyWarrior said...

THE NEW WORLD DISORDER
Documents reveal 'shadow government'
Freedom of Information request puts 1,000 new pages online

executive branch coup d'etat

"They are sharing their laws and regulations so we can 'harmonize' and 'integrate' our laws into a North American structure, not a USA structure."

Corsi claims the process is well along the way.

"This is totally outside the U.S. Constitution....

Bureaucrats from agencies throughout the Bush administration are meeting regularly with their counterpart bureaucrats in the Canadian and Mexican governments to engage in a broad rewriting of U.S. administrative law and regulations into a new trilateral North American configuration, Corsi contends.

URL:
http://worldnetdaily.com/news/article.asp?
ARTICLE_ID=52576

FlyingMonkeyWarrior said...

Sorry Kieith,
Opps.
Did not mean to post shadow gov article here, Oct open thread is where I wanted it.
I won't post it again though.

Anonymous said...

Let's see now,

"1) M3 is growing at 10%, check,"

We don't know what M3 is, you idiot! And 10% is nothing to brag about, you idiot!

"2) The BoJ is loaning at 0% again, check"

So what? You idiot!

"3) Unemployment is at a record low, check"

Yes, thanks to low paying Walmart jobs, you idiot!

"4) Consumer spending is fine, check"

Because of massive debt spending, you idiot! Savings have been negative for over a year, you idiot!

"5) Corporations have so much cash, they are buying back shares, check"

But they are not passing the money on to their workers, you idiot!

"Yes, it certainly looks like an economic meltdown is imminent... "

It's far from perfect, you idiot!

FORCLOSE YOU said...

Nopeit wontlast that long. People will anic early.......

FORCLOSE YOU said...

Nopeit wontlast that long. People will anic early.......

FORCLOSE YOU said...

panic is a good thing smart peoplemake a lot ofmoney when the fols panic. But if you are upside down oh sh$$ there goes the house honey.

brokersleaveyoubroke said...

5) Corporations have so much cash, they are buying back shares, check

Buying back shares is a gimmick to prop up 'earnings per share' because the real earnings are in decline. Also, a disturbingly high percentage of companies borrow the money to buy the shares back.

1) M3 is growing at 10%, check

Um, hello, that's bad news. It means that all the dollars already out there are now worth less. It means inflation and higher interest rates which means recession and maybe meltdown.

Anonymous said...

Hopefully, the oncoming economic recession/depression will be in full swing long before Bush leaves office. That way, Bush will get the blame he deserves for destroying our economy.
+++++++++++++
That's what I'm praying will happen. However, I'm sure the Bushies will lie and deceive in every way possible to keep the credit bubble from bursting while Dubya is still in office....

Anonymous said...

"1) M3 is growing at 10%, check

Um, hello, that's bad news. It means that all the dollars already out there are now worth less. It means inflation and higher interest rates which means recession and maybe meltdown."


Bad news if you live on a fixed income, a pension that isn't inflation indexed, or you are a foreigner holding a bag of treasury IOUs. It's great news for debtors like Uncle Sam who will pay off all those nagging obligations with toilet paper.

Inflation is good news for Joe Sixpack because his paycheck is bigger and that tax refund from da gummint is bigger too.

Don't worry, China and Japan will keep the loan windows open so our good Uncle can keep interest rates on this side low. That way Joe can shop at Wal-Mart and maybe even buy himself a new Toyota pickup. One hand washes the other...

kkdoughnut said...

"That's what I'm praying will happen. However, I'm sure the Bushies will lie and deceive in every way possible to keep the credit bubble from bursting while Dubya is still in office...."

But it was OK back in '98 when Greenspan dumped $2 trillion into the economy before Y2K? I believe a fellow named Clinton was Prez then. No lies or deception there, oh no. And that phony economic boom he triggered was just swell, right?

If you're going to be a tool, at least try to be a sharp one.

Anonymous said...

Like I said, it's all Clinton's fault. That loser started the downward spiral with phony statistics for the sheeple to believe a reduction of the deficit was a reduction of national debt. You foolish dims believe everything that bozo says.

Anonymous said...

Kill the social spending! Screw the needy! Save the country! Health and Human service (favorite pork for socialist dims) is the LARGEST portion of the budget. Kill it! Save the USA!

Anonymous said...

Let's see now,

1) M3 is growing at 10%, check,

2) The BoJ is loaning at 0% again, check

3) Unemployment is at a record low, check

4) Consumer spending is fine, check

5) Corporations have so much cash, they are buying back shares, check


Yes, it certainly looks like an economic meltdown is imminent...

--------------------

Do you believe the official inflation rate and unemployment rate figures? Without the rose-colored government-issued glasses, 3 & 4 don't look so good. Likewise for GDP growth. We are in a stagflationary recession even as we speak. Maybe not a meltdown, but nothing to cheer either. Hopefully it won't get too much worse than the 70s.

Anonymous said...

"Inflation is good news for Joe Sixpack because his paycheck is bigger and that tax refund from da gummint is bigger too."

Let's see... Inflation at 7% vs. Joe's raise of 3%. Yeah, inflation is great for Joe. Welcome to the hell of globalization without representation.

twib said...

Buying back shares is a gimmick to prop up 'earnings per share' because the real earnings are in decline.

Propping up the earnings per share is the end goal. Buying back shares is a legitiment way to do it.

It is gimmicky only in the way that normally, companies invest in their businesses to increase earnings. It's as if all these corporations nowadays don't know how to invest their earnings. It used to be that earnings would go back into the business one way or the other -- expansion in new markets, new product developments, etc.

Anonymous said...

"Buying back shares is a gimmick to prop up 'earnings per share' because the real earnings are in decline."

Propping up the earnings per share is the end goal. Buying back shares is a legitiment way to do it.

It is gimmicky only in the way that normally, companies invest in their businesses to increase earnings. It's as if all these corporations nowadays don't know how to invest their earnings. It used to be that earnings would go back into the business one way or the other -- expansion in new markets, new product developments, etc.

--------------

I agree - sort of. Earnings per share are what really matters. Buying back shares is a legitimate way to increase earnings per share as long as it's done with surplus cash, not borrowed money.

As far as reinvesting profits back into the company, haven't there been a number of studies that showed that basically management can't be trusted with TOO much money? Companies that paid significant dividends (returning profits to shareholders) have done better than ones in which most/all of the profits were "reinvested" back into the business (or perhaps into managements' pockets). It's better to force management to pick their best ideas to pursue (by constraining available funds) rather than letting them engage in empire building for its own sake.

Anonymous said...

"Let's see... Inflation at 7% vs. Joe's raise of 3%. Yeah, inflation is great for Joe. Welcome to the hell of globalization without representation."

Globalization is going to lower our standard of living, no doubt about it. But what would you rather have, Joe Sixpack working with regular pay raises, or a depression with Joe and his brood living in a tent?

You doom and gloom guys don't have any idea of what a true defationary bust would entail. The only way out for the politicians and bankers is to inflate away the debts. There will be no HP.

Anonymous said...

"Let's see... Inflation at 7% vs. Joe's raise of 3%. Yeah, inflation is great for Joe. Welcome to the hell of globalization without representation."

Globalization is going to lower our standard of living, no doubt about it. But what would you rather have, Joe Sixpack working with regular pay raises, or a depression with Joe and his brood living in a tent?

You doom and gloom guys don't have any idea of what a true defationary bust would entail. The only way out for the politicians and bankers is to inflate away the debts. There will be no HP.

------------------------

A hyperinflationary depression would be no walk in the park either. If we are "lucky" we'll end up with a long period of stagflation (we are basically in one already, but it could and probably will get worse). People who bought homes they couldn't afford, using suicide financing, will get wiped out. Nominal home prices may only come down a little, but real values will collapse.

Vegas crash watcher said...

Hyperinflation leads to the fall of the political class. Deflation leads to the fall of the middle-class.

I don't have to guess which one the US will get.