8 ms·

Not a Dot-Com Bubble, Not 2007, but a Nasty Mix of Both

81 points by esalazar 10y ago

dmoy 10y ago
Can't read the article (even with the 'web' link above via Google), anyone have a summary?
- cvg 10y ago
  https://archive.is/qJXjT https://archive.is/qJXjT
  - dmoy 10y ago
    Awesome thanks :)
- bolle 10y ago
  This still works, if paste the correct link to the article you want to read: https://www.facebook.com/l.php?u=https://www.wsj.com/artic...etc https://www.facebook.com/l.php?u=https://www.wsj.com/artic.....
tuna-piano 10y ago
Maybe I don't have a full understanding- but economywide, the amount of debt and savings has to be equal, right? So if the debt of these large companies has increased, who is doing the extra savings (and loaning the money to these companies)? And if interest rates double, we will likely see these companies unwind some of their debt positions. What will be the effects of that?
- simcop2387 10y ago
  > Maybe I don't have a full understanding- but economywide, the amount of debt and savings has to be equal, right? Only if you assume the total amount of currency in the system is fixed. If some of it gets destroyed (cash burned in fire) then you can easily have debt grow more than savings because the destruction of the currency doesn't destroy the debt. This also assumes that the debt has the same growth (interest) as the savings (also interest). If the debt has higher interest on it and isn't defaulted on, then the debt can also easily grow to above the level of savings. Now that happening does mean that the debt can't be paid off with savings as it is now, so you need to be able to generate enough value/profit/product to be able to keep paying the principle down and even though the savings isn't enough to wipe it out the debt still isn't necessarily uncontrollable. That said there's got to be a tipping point where you can no longer keep that up and there will eventually be no choice but to default on that debt and then all kinds of hell breaks loose because that hasn't happened very often in modern economies so nobody really knows how to handle it.
- deleted 10y ago
  [deleted]
- cbanek 10y ago
  Not exactly. Banks "create" money when they make loans, but are only required to keep a certain percentage of that loan in reserve. http://www.cnbc.com/id/100497710 http://www.cnbc.com/id/100497710 You've hit the nail on the head with interest rates going up. More than that, many companies have been taking out debt to buy back shares of their company on the public market at recent prices. If the value of those purchased shares go down, that could also be trouble.
  - tuna-piano 10y ago
    Even with reserve banking though, banks do increase the money supply but a banks assets are still always equal to its liabilities. Someone still needs to loan the money to these more indebted companies. Who is doing the additional lending?
    - ww520 10y ago
      Simplified scenario. Bank's liability is the deposit people put in the bank. Bank's asset is its deposited cash. When people deposit money, the bank's liability and asset increase by the same amount. When the bank lends out a loan of X amount as cash, its asset is deducted with X cash, but it would book the loan as asset as well since the borrower owes the bank X cash. Everything balances out. When the bank lends out a loan of Y amount as fund in the borrower's account in the bank, the bank's liability increases by Y since Y has been deposited into the customer's account. At the same time, the bank's asset increases by Y since the bank receives the borrowed money under the customer name into its cash pile. Everything balances out. Afterward when the customer withdraws the borrowed money out of his deposit account, it decreases the liability and asset of the bank at the same time.
    - AlexCoventry 10y ago
      The Fed.
- carsongross 10y ago
  Debt is created ex nihilo from the banking sector, so no real savings (that is, foregone consumption) needs to match it. The only thing constraining debt in our system is the capacity of the economy to meet the ongoing payments. (If we had duration matched savings then debt would much more closely correspond to savings and there would be no danger of runs on the banking system.) When rates double it will be an economic catastrophe.
- ww520 10y ago
  The economy's "balance sheet" isn't accounted for the same as the balance sheet of a company or personal finance. Fractional reserve allows a bank to lend out N times more than what it has in saving deposit. With re-deposit of the lent out money, the bank can lend out more, with (N-1)/N times, and so on. Interest rate acts as a lever to limit the amount of loans people are willing to take. Higher interest rates will force companies to not take on more debt; however, the long term debt they got before with a lower rate is cheaper now compared to new debt so they would keep those.
  - deleted 10y ago
    [deleted]
  - IIIIIIIIIIII 10y ago
    > allows a bank to lend out N times more than what it has in saving deposit. That is not quite how it works according to the Bank of England: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf http://www.bankofengland.co.uk/publications/Documents/quarte... A few summary excerpts > Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. > The reality of how money is created today differs from the description found in some economics textbooks: > • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. > • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits. > In fact, when households choose to save more money in bank accounts, those deposits come simply at the expense of deposits that would have otherwise gone to companies in payment for goods and services. Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money > Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach. > ... > While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality > In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available.
- slv77 10y ago
  Your exactly right... savings and debt are always exactly balances with the small exception of the gold that is still sitting on the Federal Reserves balanace sheet. Currently the savings and debt dynamics are skewed with a large amount of savings being held or controlled by very high net worth individuals and the debt being held widely. These situations have always in the past resulted in deflationary periods like we saw in the 1890's 1929 and recently in 2008. The current economy is a lot like the old company store in mining towns where everyone is in debt to the company store and the only things that you can buy are what the company store sells. Is it any wonder that the hottest consumption items are the sectors of the economy that are financed?
- pjc50 10y ago
  The global 0.1% in tax havens. This stuff is rather difficult to trace; people surveying global assets vs global liabilities find over a trillion dollars of difference where there should be none. https://web.law.columbia.edu/sites/default/files/microsites/policing-litigation-conference/files/The%20Quarterly%20Journal%20of%20Economics-2013-Zucman-1321-64.pdf https://web.law.columbia.edu/sites/default/files/microsites/... "This stock of unrecorded assets is double the recorded net debt of the rich world".
carsongross 10y ago
The Shiller PE has been higher than it is today exactly twice, in 1929 and in 1999: http://www.multpl.com/shiller-pe/ http://www.multpl.com/shiller-pe/ However, in 1999 it went much higher, so I'm not sure I'd be loading up on those shorts.
- MegaButts 10y ago
  The market can remain irrational longer than you can remain solvent. I agree a reckoning is coming, and while my guess would be this year, I said the same thing 2 years ago. ¯\_(ツ)_/¯
  - carsongross 10y ago
    Two years ago was a bad bet, based on market momentum. Winter 2016 was a good bet based on market momentum. Then the election happened and the market inexplicably took off. Yeah, ¯\_(ツ)_/¯
- snarf21 10y ago
  I understand the basics of the Shiller PE but what effect does the fact that so many companies are keeping their earnings overseas in Ireland, etc. have on this? This article says that the top 50 companies have $1.4TT overseas right now. [http://money.cnn.com/2016/04/14/news/tax-us-companies-offshore-cash/ http://money.cnn.com/2016/04/14/news/tax-us-companies-offsho...]
  - carsongross 10y ago
    I'm not sure how overseas earnings are treated. Would be interested to know.
Aloha 10y ago
Sometimes I wonder if we're looking at another 1929 event. Lets posit 1929 - in 1929 by most accounts the economy was booming, drive by easy credit and new inventions, a new consumer oriented society was driving buying on credit and speculation in the stock market. But the economy at its core was weak, specifically in the agricultural sector. Lets Posit today - Uneven recovery from last economic crisis, most of the economy has weak growth, boom of growth in certain markets, weak agricultural commodity pricing. I see parallels, enough parallels to be concerned really, but not enough to go hide in a hole until its all better. I'm concerned the current administration may not respond full-throatedly enough in the event of a real crisis however.
- cm2187 10y ago
  1929 will come when the debt crisis finally happen. Only a mad man can think that we can sustain our way of life by borrowing more indefinitely. I don't know if it's going to be at 150% debt to gdp or perhaps 200%. But one thing is certain, whether it is through hyper-inflation or defaults, lots of people are going to be wiped out.
  - deelowe 10y ago
    Every time I bring this up, someone corrects me and says that things aren't the same these days with fiat currency and the way national debt is owed to "ourselves." I don't know enough myself to counter this.
    - AlexCoventry 10y ago
      The key idea behind the argument is that money is created by the government as a soft policy-enforcement tool, and it can and does create as much money as it needs to induce its policy choices (by funding them), while raising demand for the currency by raising taxes. (Even if you were paid entirely in "Liberty Dollars" or whatever last year, and have no other need for US dollars, in the US the IRS is going to tax you on the fair market value of your income - and the bill will be due in US dollars. This is a demand-side advantage which no other currency can match, unless it's also backed by a credible military/ police force.) This means that any debt which comes due and is denominated in the national currency could theoretically be repaid by simply creating more of the currency. Therefore, when a government raises debt denominated in its own currency, it's not trading on the credibility of its currency- denominated national income. That's the key difference from the financing of a typical household or business, which can typically raise debt according to its perceived ability to bring in disposable income. National debt is instead trading on the nation's commitment to refrain from printing money which it can't credibly raise demand for by raising taxes.
gdubs 10y ago
Alan Watts talks about how some things in life can be like trying to smooth the waves in the ocean with a flat iron. I often think of that when it comes to the Fed. I know next to nothing compared to the financial wizards, but it does seem like every major financial crisis started with some marginal movement by the Fed. I'm not saying there's a better alternative, or necessarily knocking them - I have respect for them. But at times it seems like nobody really knows how the economy works, and each crisis is followed by an, "oops, let's not do that again."
- WalterBright 10y ago
  Milton Friedman wrote in "Monetary History of the United States" that the money was more stable when interest rates were set by the blind workings of supply & demand than when the Fed did it, and backed it up with charts and statistics.
  - _jahh 10y ago
    https://en.m.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.m.wikipedia.org/wiki/List_of_recessions_in_the_Un... Just a cursory glance at that will show that isn't correct. Prior to the fed you had panics every two years.
    - lingben 10y ago
      and looking outside the US, Australia hasn't had a recession in more than 25 years
  - WalterBright 10y ago
    Here's the quote, from page 10: "As is clear to the naked eye in Chart 1, the stock of money shows larger fluctuations after 1914 than before 1914 and this is true even if the large wartime increases in the stock of money are excluded. The blind, undesigned, and quasi-automatic working of the gold Standard turned out to produce a greater measure of predictability and regularity—perhaps because its discipline was impersonal and inescapable—than did deliberate and conscious control exercised within institutional arrangements intended to promote monetary stability." Chart 1 is on page 4 and plots the x axis 1867 to 1960 and the y axis plots deposits and currency, and yeah, it's pretty clear to the naked eye.
good_vibes 10y ago
In my gut, I feel like the same mindset that caused 2000 and 2007 has come together into one that will cause a bubble greater than both. Why do I think that? 1.) After watching 'Big Short', it made me realize that a lot of what causes a bubble is no one asking difficult questions because nobody wants to be 'that guy' who ruins the party. 2.) If Facebook, Uber, or the Pepsi ad is any indication, there are a lot of talented 'yes men' going along with business-as-usual because of self-interest. 3.) Snap is more alarming to me than Tesla. Tesla succeeding with their long-term vision is a much safer bet than Snap is. I know a 'social media influencer' and he recently told me that a lot of his network is leaving Snap for 'more stable platforms with broader demographics'. 4.) The recovery will be very different from the last 2 because AI, robots, and other forms of disruption will swallow up thousands, if not millions, of jobs. Why would executives and shareholders decrease margins for PR? Uber was affected a little by their recent issues but they are already 'back on track' it seems. All in all, I am 27 and graduated high school when 2007 happened. I was 10 when the 2000 happened. This is the only world I know, one that works in 8 year cycles. 1992 Bill Clinton was elected with 'it's the economy, stupid'. We are in for quite a ride because fanaticism, corruption, and climate change are all showing up in unexpected ways too. It will all be okay though, suffering builds character.
- bmer 10y ago
  26, and feeling kind of the same as you. I don't really remember 1999/2000 too well (was too young), but I remember 2007/2008 quite well---my dad got fired from a very well paying job (he was a civil engineer). All of a sudden, I went from being a reasonably rich high school kid (with a straight path into uni), to someone whose parents had to move homes (we were renting, and had to cut down on expenses, especially since I was off to uni) and whose dad was struggling with depression (even though he didn't know what to call it at the time). I am still not quite sure how my dad's depression played into the surfacing of my own, smack back in 2010, right in the middle of my first degree (also in civil engineering), but I know the results: I quit civil engineering, and I have been on and off in school ever since, basically thriving on "passion" and my parent's money... I am not sure if suffering builds character.
  - 10y ago
lxcid 10y ago
I'm not well verse in economy but I believe much of what US is today is built on being the global dependency. It's like the JQuery of everyone's economy: too big to fail. After Trump inarguration, the world got a shock at what a hell of a dependency they got themselves into (bigger shock than 2008). It's like the leftpad fiasco all over again. Any sane politician would by now understand the need to reduce dependency on America. Everyone else are planning a Dodd Frank fix for their economy. US will really suffer a crisis if the world stop depending on it, if they can afford to ignore America. After TPP was canned, and Trump protectionism approach, that dependency is surely weaken. If you think about it, China is not even trying to complain about US anymore. That's because they got what they wanted. But US had a nuclear arsenal, its better for the world if we had this dependency. Trade and economy have kept peace for so long, I hope I don't see an end to this peace.
- joering2 10y ago
  I don't understand the ending of your story... So basically if the world stops depending on USA, their will start launching nukes?
  - williamscales 10y ago
    If the world doesn't have to depend on the US as a cornerstone of the global economy then the US would be totally irrelevant but for its nuclear capacity.
- adventurer 10y ago
  I think we're yet to see any sort of shock. The markets hit record levels in the U.S. after the Trump election. The entire system is oblivious to anything future related until it's too late. Totally reactive.
CriticalSection 10y ago
Every decade since the 1960s, Real (ie. non-financial) US GDP growth has slowed ( https://fred.stlouisfed.org/series/A191RL1Q225SBEA https://fred.stlouisfed.org/series/A191RL1Q225SBEA ). Industrial capacity utilization has been shrinking since the early 1970s. In the early 1970s, 88% of invested capital was utilized in production. Today that's less than 76%. So about a quarter of invested capital is sitting idle currently. ( https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath=/files/docs/publications/ERP/2012/2012_erp.pdf&start_page=378 https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath... ) ( https://www.federalreserve.gov/releases/g17/revisions/Current/table1b_rev.htm https://www.federalreserve.gov/releases/g17/revisions/Curren... ) Also in the US we've seen since the 1960s increasing debt percentage across households, corporations and governments, lower wages against different backdrops, and decreased capital re-investment as a percentage of GDP.
- sunshinerag 10y ago
  I wonder why the year 1970 keeps appearing as a turning point in a lot of these economic discussions. Did any event of significance happen around the 1970s?
pembrook 10y ago
Every retail investor today makes the same exact mistake. They read articles like this and then they go look at a historical chart of the market. They see a massive run up to present day...with the wild fluctuations for 2000 and 2007 magnified due to the exponential data. Psychologically, they think this must be the pattern of the market, we are obviously due for a fall. Then, one day years later, after they've lost out on ridiculous gains waiting for the "big drop," they learn that when looking at a historical market chart to switch from linear to logarithmic scale. Suddenly the crazy recent capitulations just look part of a steady climb with minuscule blips along the way. Go ahead and try it on Google Finance with the S&P. You'll be amazed. edit Changed 'exponential' to avoid confusion
- bt4u 10y ago
  Why is your name green?
  - pembrook 10y ago
    Hrrmmm, odd that you see it that way too. I thought it was just showing that way to me because I'm logged in.
  - d--b 10y ago
    usernames are green when they've been created recently. here the account is less than 3 days old
- ozim 10y ago
  Isn't logarithmic scale tool for showing exponential growth as linear? So doing it is not making growth linear. It is still exponential or I do not understand your argument.
  - pembrook 10y ago
    I'm not saying it's changing the exponential nature of the market. It's just more properly displaying the data for human interpretation. Looking at a linear chart of historical price data will cause you to make bad decisions. A linear y-axis is terrible for viewing historical market data because you can't compare percent changes across historical periods. Because the price of the market has grown exponentially, any movement in 1929 for example looks like a minor blip in comparison to anything happening in present day (due to the exponential price appreciation). On a log scale, you can see that movement in the proper context compared to 2000 and 2007.
dbg31415 10y ago
I don't really know what to do with this news... I mean... do I cancel my 401k, do I sell my house, do I dig a bunker? Recessions come and go, right? What can you do to prepare for the future except keep your debts cleared, keep a certain amount of cash on hand (I like about 6 month's worth), invest the rest as wisely as you can... and y'know... cross your fingers. There will be ups and downs. Life is long. And this is a depressing topic. (=
- thatwebdude 10y ago
  Do what's best for you. Only you can answer those questions. If you're not living foolishly then you're 80% through the clear. The U.S. dollar isn't going to disappear. It runs the world. (sorry, not sorry)
nocoder 10y ago
The real blow-up will happen when we stop seeing mainstream articles about a upcoming blow-up.
true_tuna 10y ago
Stop posting paywalled articles. If we ignore them they fail and go away.

81 points by esalazar 10y ago

dmoy 10y ago

Can't read the article (even with the 'web' link above via Google), anyone have a summary?

cvg 10y ago
https://archive.is/qJXjT https://archive.is/qJXjT
- dmoy 10y ago
  Awesome thanks :)
bolle 10y ago
This still works, if paste the correct link to the article you want to read: https://www.facebook.com/l.php?u=https://www.wsj.com/artic...etc https://www.facebook.com/l.php?u=https://www.wsj.com/artic.....

tuna-piano 10y ago

Maybe I don't have a full understanding- but economywide, the amount of debt and savings has to be equal, right? So if the debt of these large companies has increased, who is doing the extra savings (and loaning the money to these companies)? And if interest rates double, we will likely see these companies unwind some of their debt positions. What will be the effects of that?

simcop2387 10y ago
> Maybe I don't have a full understanding- but economywide, the amount of debt and savings has to be equal, right? Only if you assume the total amount of currency in the system is fixed. If some of it gets destroyed (cash burned in fire) then you can easily have debt grow more than savings because the destruction of the currency doesn't destroy the debt. This also assumes that the debt has the same growth (interest) as the savings (also interest). If the debt has higher interest on it and isn't defaulted on, then the debt can also easily grow to above the level of savings. Now that happening does mean that the debt can't be paid off with savings as it is now, so you need to be able to generate enough value/profit/product to be able to keep paying the principle down and even though the savings isn't enough to wipe it out the debt still isn't necessarily uncontrollable. That said there's got to be a tipping point where you can no longer keep that up and there will eventually be no choice but to default on that debt and then all kinds of hell breaks loose because that hasn't happened very often in modern economies so nobody really knows how to handle it.
deleted 10y ago
[deleted]
cbanek 10y ago
Not exactly. Banks "create" money when they make loans, but are only required to keep a certain percentage of that loan in reserve. http://www.cnbc.com/id/100497710 http://www.cnbc.com/id/100497710 You've hit the nail on the head with interest rates going up. More than that, many companies have been taking out debt to buy back shares of their company on the public market at recent prices. If the value of those purchased shares go down, that could also be trouble.
- tuna-piano 10y ago
  Even with reserve banking though, banks do increase the money supply but a banks assets are still always equal to its liabilities. Someone still needs to loan the money to these more indebted companies. Who is doing the additional lending?
  - ww520 10y ago
    Simplified scenario. Bank's liability is the deposit people put in the bank. Bank's asset is its deposited cash. When people deposit money, the bank's liability and asset increase by the same amount. When the bank lends out a loan of X amount as cash, its asset is deducted with X cash, but it would book the loan as asset as well since the borrower owes the bank X cash. Everything balances out. When the bank lends out a loan of Y amount as fund in the borrower's account in the bank, the bank's liability increases by Y since Y has been deposited into the customer's account. At the same time, the bank's asset increases by Y since the bank receives the borrowed money under the customer name into its cash pile. Everything balances out. Afterward when the customer withdraws the borrowed money out of his deposit account, it decreases the liability and asset of the bank at the same time.
  - AlexCoventry 10y ago
    The Fed.
carsongross 10y ago
Debt is created ex nihilo from the banking sector, so no real savings (that is, foregone consumption) needs to match it. The only thing constraining debt in our system is the capacity of the economy to meet the ongoing payments. (If we had duration matched savings then debt would much more closely correspond to savings and there would be no danger of runs on the banking system.) When rates double it will be an economic catastrophe.
ww520 10y ago
The economy's "balance sheet" isn't accounted for the same as the balance sheet of a company or personal finance. Fractional reserve allows a bank to lend out N times more than what it has in saving deposit. With re-deposit of the lent out money, the bank can lend out more, with (N-1)/N times, and so on. Interest rate acts as a lever to limit the amount of loans people are willing to take. Higher interest rates will force companies to not take on more debt; however, the long term debt they got before with a lower rate is cheaper now compared to new debt so they would keep those.
- deleted 10y ago
  [deleted]
- IIIIIIIIIIII 10y ago
  > allows a bank to lend out N times more than what it has in saving deposit. That is not quite how it works according to the Bank of England: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf http://www.bankofengland.co.uk/publications/Documents/quarte... A few summary excerpts > Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. > The reality of how money is created today differs from the description found in some economics textbooks: > • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. > • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits. > In fact, when households choose to save more money in bank accounts, those deposits come simply at the expense of deposits that would have otherwise gone to companies in payment for goods and services. Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money > Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach. > ... > While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality > In reality, neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available.
slv77 10y ago
Your exactly right... savings and debt are always exactly balances with the small exception of the gold that is still sitting on the Federal Reserves balanace sheet. Currently the savings and debt dynamics are skewed with a large amount of savings being held or controlled by very high net worth individuals and the debt being held widely. These situations have always in the past resulted in deflationary periods like we saw in the 1890's 1929 and recently in 2008. The current economy is a lot like the old company store in mining towns where everyone is in debt to the company store and the only things that you can buy are what the company store sells. Is it any wonder that the hottest consumption items are the sectors of the economy that are financed?
pjc50 10y ago
The global 0.1% in tax havens. This stuff is rather difficult to trace; people surveying global assets vs global liabilities find over a trillion dollars of difference where there should be none. https://web.law.columbia.edu/sites/default/files/microsites/policing-litigation-conference/files/The%20Quarterly%20Journal%20of%20Economics-2013-Zucman-1321-64.pdf https://web.law.columbia.edu/sites/default/files/microsites/... "This stock of unrecorded assets is double the recorded net debt of the rich world".

carsongross 10y ago

The Shiller PE has been higher than it is today exactly twice, in 1929 and in 1999: http://www.multpl.com/shiller-pe/ http://www.multpl.com/shiller-pe/ However, in 1999 it went much higher, so I'm not sure I'd be loading up on those shorts.

MegaButts 10y ago
The market can remain irrational longer than you can remain solvent. I agree a reckoning is coming, and while my guess would be this year, I said the same thing 2 years ago. ¯\_(ツ)_/¯
- carsongross 10y ago
  Two years ago was a bad bet, based on market momentum. Winter 2016 was a good bet based on market momentum. Then the election happened and the market inexplicably took off. Yeah, ¯\_(ツ)_/¯
snarf21 10y ago
I understand the basics of the Shiller PE but what effect does the fact that so many companies are keeping their earnings overseas in Ireland, etc. have on this? This article says that the top 50 companies have $1.4TT overseas right now. [http://money.cnn.com/2016/04/14/news/tax-us-companies-offshore-cash/ http://money.cnn.com/2016/04/14/news/tax-us-companies-offsho...]
- carsongross 10y ago
  I'm not sure how overseas earnings are treated. Would be interested to know.

Aloha 10y ago

Sometimes I wonder if we're looking at another 1929 event. Lets posit 1929 - in 1929 by most accounts the economy was booming, drive by easy credit and new inventions, a new consumer oriented society was driving buying on credit and speculation in the stock market. But the economy at its core was weak, specifically in the agricultural sector. Lets Posit today - Uneven recovery from last economic crisis, most of the economy has weak growth, boom of growth in certain markets, weak agricultural commodity pricing. I see parallels, enough parallels to be concerned really, but not enough to go hide in a hole until its all better. I'm concerned the current administration may not respond full-throatedly enough in the event of a real crisis however.

cm2187 10y ago
1929 will come when the debt crisis finally happen. Only a mad man can think that we can sustain our way of life by borrowing more indefinitely. I don't know if it's going to be at 150% debt to gdp or perhaps 200%. But one thing is certain, whether it is through hyper-inflation or defaults, lots of people are going to be wiped out.
- deelowe 10y ago
  Every time I bring this up, someone corrects me and says that things aren't the same these days with fiat currency and the way national debt is owed to "ourselves." I don't know enough myself to counter this.
  - AlexCoventry 10y ago
    The key idea behind the argument is that money is created by the government as a soft policy-enforcement tool, and it can and does create as much money as it needs to induce its policy choices (by funding them), while raising demand for the currency by raising taxes. (Even if you were paid entirely in "Liberty Dollars" or whatever last year, and have no other need for US dollars, in the US the IRS is going to tax you on the fair market value of your income - and the bill will be due in US dollars. This is a demand-side advantage which no other currency can match, unless it's also backed by a credible military/ police force.) This means that any debt which comes due and is denominated in the national currency could theoretically be repaid by simply creating more of the currency. Therefore, when a government raises debt denominated in its own currency, it's not trading on the credibility of its currency- denominated national income. That's the key difference from the financing of a typical household or business, which can typically raise debt according to its perceived ability to bring in disposable income. National debt is instead trading on the nation's commitment to refrain from printing money which it can't credibly raise demand for by raising taxes.

gdubs 10y ago

Alan Watts talks about how some things in life can be like trying to smooth the waves in the ocean with a flat iron. I often think of that when it comes to the Fed. I know next to nothing compared to the financial wizards, but it does seem like every major financial crisis started with some marginal movement by the Fed. I'm not saying there's a better alternative, or necessarily knocking them - I have respect for them. But at times it seems like nobody really knows how the economy works, and each crisis is followed by an, "oops, let's not do that again."

WalterBright 10y ago
Milton Friedman wrote in "Monetary History of the United States" that the money was more stable when interest rates were set by the blind workings of supply & demand than when the Fed did it, and backed it up with charts and statistics.
- _jahh 10y ago
  https://en.m.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.m.wikipedia.org/wiki/List_of_recessions_in_the_Un... Just a cursory glance at that will show that isn't correct. Prior to the fed you had panics every two years.
  - lingben 10y ago
    and looking outside the US, Australia hasn't had a recession in more than 25 years
- WalterBright 10y ago
  Here's the quote, from page 10: "As is clear to the naked eye in Chart 1, the stock of money shows larger fluctuations after 1914 than before 1914 and this is true even if the large wartime increases in the stock of money are excluded. The blind, undesigned, and quasi-automatic working of the gold Standard turned out to produce a greater measure of predictability and regularity—perhaps because its discipline was impersonal and inescapable—than did deliberate and conscious control exercised within institutional arrangements intended to promote monetary stability." Chart 1 is on page 4 and plots the x axis 1867 to 1960 and the y axis plots deposits and currency, and yeah, it's pretty clear to the naked eye.

good_vibes 10y ago

In my gut, I feel like the same mindset that caused 2000 and 2007 has come together into one that will cause a bubble greater than both. Why do I think that? 1.) After watching 'Big Short', it made me realize that a lot of what causes a bubble is no one asking difficult questions because nobody wants to be 'that guy' who ruins the party. 2.) If Facebook, Uber, or the Pepsi ad is any indication, there are a lot of talented 'yes men' going along with business-as-usual because of self-interest. 3.) Snap is more alarming to me than Tesla. Tesla succeeding with their long-term vision is a much safer bet than Snap is. I know a 'social media influencer' and he recently told me that a lot of his network is leaving Snap for 'more stable platforms with broader demographics'. 4.) The recovery will be very different from the last 2 because AI, robots, and other forms of disruption will swallow up thousands, if not millions, of jobs. Why would executives and shareholders decrease margins for PR? Uber was affected a little by their recent issues but they are already 'back on track' it seems. All in all, I am 27 and graduated high school when 2007 happened. I was 10 when the 2000 happened. This is the only world I know, one that works in 8 year cycles. 1992 Bill Clinton was elected with 'it's the economy, stupid'. We are in for quite a ride because fanaticism, corruption, and climate change are all showing up in unexpected ways too. It will all be okay though, suffering builds character.

bmer 10y ago
26, and feeling kind of the same as you. I don't really remember 1999/2000 too well (was too young), but I remember 2007/2008 quite well---my dad got fired from a very well paying job (he was a civil engineer). All of a sudden, I went from being a reasonably rich high school kid (with a straight path into uni), to someone whose parents had to move homes (we were renting, and had to cut down on expenses, especially since I was off to uni) and whose dad was struggling with depression (even though he didn't know what to call it at the time). I am still not quite sure how my dad's depression played into the surfacing of my own, smack back in 2010, right in the middle of my first degree (also in civil engineering), but I know the results: I quit civil engineering, and I have been on and off in school ever since, basically thriving on "passion" and my parent's money... I am not sure if suffering builds character.
- 10y ago

lxcid 10y ago

I'm not well verse in economy but I believe much of what US is today is built on being the global dependency. It's like the JQuery of everyone's economy: too big to fail. After Trump inarguration, the world got a shock at what a hell of a dependency they got themselves into (bigger shock than 2008). It's like the leftpad fiasco all over again. Any sane politician would by now understand the need to reduce dependency on America. Everyone else are planning a Dodd Frank fix for their economy. US will really suffer a crisis if the world stop depending on it, if they can afford to ignore America. After TPP was canned, and Trump protectionism approach, that dependency is surely weaken. If you think about it, China is not even trying to complain about US anymore. That's because they got what they wanted. But US had a nuclear arsenal, its better for the world if we had this dependency. Trade and economy have kept peace for so long, I hope I don't see an end to this peace.

joering2 10y ago
I don't understand the ending of your story... So basically if the world stops depending on USA, their will start launching nukes?
- williamscales 10y ago
  If the world doesn't have to depend on the US as a cornerstone of the global economy then the US would be totally irrelevant but for its nuclear capacity.
adventurer 10y ago
I think we're yet to see any sort of shock. The markets hit record levels in the U.S. after the Trump election. The entire system is oblivious to anything future related until it's too late. Totally reactive.

CriticalSection 10y ago

Every decade since the 1960s, Real (ie. non-financial) US GDP growth has slowed ( https://fred.stlouisfed.org/series/A191RL1Q225SBEA https://fred.stlouisfed.org/series/A191RL1Q225SBEA ). Industrial capacity utilization has been shrinking since the early 1970s. In the early 1970s, 88% of invested capital was utilized in production. Today that's less than 76%. So about a quarter of invested capital is sitting idle currently. ( https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath=/files/docs/publications/ERP/2012/2012_erp.pdf&start_page=378 https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath... ) ( https://www.federalreserve.gov/releases/g17/revisions/Current/table1b_rev.htm https://www.federalreserve.gov/releases/g17/revisions/Curren... ) Also in the US we've seen since the 1960s increasing debt percentage across households, corporations and governments, lower wages against different backdrops, and decreased capital re-investment as a percentage of GDP.

sunshinerag 10y ago
I wonder why the year 1970 keeps appearing as a turning point in a lot of these economic discussions. Did any event of significance happen around the 1970s?

pembrook 10y ago

Every retail investor today makes the same exact mistake. They read articles like this and then they go look at a historical chart of the market. They see a massive run up to present day...with the wild fluctuations for 2000 and 2007 magnified due to the exponential data. Psychologically, they think this must be the pattern of the market, we are obviously due for a fall. Then, one day years later, after they've lost out on ridiculous gains waiting for the "big drop," they learn that when looking at a historical market chart to switch from linear to logarithmic scale. Suddenly the crazy recent capitulations just look part of a steady climb with minuscule blips along the way. Go ahead and try it on Google Finance with the S&P. You'll be amazed. edit Changed 'exponential' to avoid confusion

bt4u 10y ago
Why is your name green?
- pembrook 10y ago
  Hrrmmm, odd that you see it that way too. I thought it was just showing that way to me because I'm logged in.
- d--b 10y ago
  usernames are green when they've been created recently. here the account is less than 3 days old
ozim 10y ago
Isn't logarithmic scale tool for showing exponential growth as linear? So doing it is not making growth linear. It is still exponential or I do not understand your argument.
- pembrook 10y ago
  I'm not saying it's changing the exponential nature of the market. It's just more properly displaying the data for human interpretation. Looking at a linear chart of historical price data will cause you to make bad decisions. A linear y-axis is terrible for viewing historical market data because you can't compare percent changes across historical periods. Because the price of the market has grown exponentially, any movement in 1929 for example looks like a minor blip in comparison to anything happening in present day (due to the exponential price appreciation). On a log scale, you can see that movement in the proper context compared to 2000 and 2007.

dbg31415 10y ago

I don't really know what to do with this news... I mean... do I cancel my 401k, do I sell my house, do I dig a bunker? Recessions come and go, right? What can you do to prepare for the future except keep your debts cleared, keep a certain amount of cash on hand (I like about 6 month's worth), invest the rest as wisely as you can... and y'know... cross your fingers. There will be ups and downs. Life is long. And this is a depressing topic. (=

thatwebdude 10y ago
Do what's best for you. Only you can answer those questions. If you're not living foolishly then you're 80% through the clear. The U.S. dollar isn't going to disappear. It runs the world. (sorry, not sorry)

nocoder 10y ago

The real blow-up will happen when we stop seeing mainstream articles about a upcoming blow-up.

true_tuna 10y ago

Stop posting paywalled articles. If we ignore them they fail and go away.