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A bubble in slow motion, someone called the present economic environment. I think it's an apt description. Extreme "quantitative easing" (I refuse to take fed s
by aedron 9y ago
A bubble in slow motion, someone called the present economic environment. I think it's an apt description. Extreme "quantitative easing" (I refuse to take fed speak seriously) has only taken effect very, very slowly. Why? Because all it really was was recapitalizing banks which had enormous gaping holes on their balance sheets after 2008. They have been able to fill the tanks now, getting money hot off the presses for a song for a decade, and finally it has started to trickle into "the real economy" and actually lead to commercial and industrial growth.
Another dampening factor has been the regulations introduced after 2008 like S̶a̶r̶b̶a̶n̶e̶s̶-̶O̶x̶l̶e̶y̶ Dodd-Frank, the moratorium on IPOs has definitely helped to slow things down.
Now things are moving again, trouble is, history has shown time and time again that monetary policy is a ketchup bottle, once it starts having effect it is already too late to moderate it. That's why we have bubbles - suddenly there is too much money slushing around chasing finite resources, markets become crazy and regulators have to slam the brakes hard (in combination with banks predictably finding ways to overleverage, legally or not). Which leads to my prediction: Markets are still not crazy enough. Crazy, but not enough to look like the part where it all blows up. So I am betting on at least six months more of "growth" (i.e. inflation) before the inevitable crash.
- tehwalrus 9y agoThat ketchup bottle analogy is wonderful, thank you :)
- koolba 9y agoThe classic analogy from economics is filling water in a bathtub. Say you've got separate hot and cold faucets and there's a delay between turning the valve and the respective water flowing. By the time you get to just the right mix, the ratio of hot water is still increasing and it'll get messed up again, which leads to increasing the cold water, which makes it too cold, which ... You get the idea.
- smaddox 9y agoWhich is perfectly controllable if your model includes delayed feedback. Unfortunately, the dominant macroeconomic models contain neither delayed feedback nor nonlinearity, and are not capable of simulating recessions without resorting to arbitrary "exogenous shocks". In contrast, Steve Keen is actively developing dynamic nonlinear models of macroeconomics that is actually capable of simulating endogenous recessions. If you're interested in learning more about Steve Keen's work, I highly recommend watching his presentation to the OECD: https://www.patreon.com/posts/my-speech-to-new-14735058 https://www.patreon.com/posts/my-speech-to-new-14735058
- benevol 9y ago> "growth" (i.e. inflation) before the inevitable crash What you need to know is this: Financial crashes are an eternal cycle, they will never go away. Unless there is fundamental societal change. Here's why: Financial crashes are business to a couple of extremely powerful/rich people. After every crash, assets are undervalued. Rich people have the financial cushion to not be impacted in the slightest way by such crashes. Which means they are in a position to purchase these undervalued assets from poorer people. The rich-poor imbalance grows further, as these undervalued assets regain their "real" value. That's the reason why these crashes are manufactured. Which means a couple of powerful/rich people will continually steer society in this direction, for example by removing laws that were put in place as safeguards. Edit: And no, this is not conspiracy, it's pure economics.
- mjburgess 9y agoAh yes, the Flimflam-Fo Equation with its key parameters, "rich person a" and "rich person b". Conspiracy theories might well be defined just by the application of the fallacy, "if someone benefits, then they intended it". And here we see this fallacy being applied. Sound like a textbook conspiracy to me. The extremely weathly are not interested in increasing their net wealth, only in specific purchases to further their goals -- which are very easy to undermine with crashes. People who are merely wealthy might possibly wish to increase their general wealth and therefore believe a crash will help them do that. That is an incredibly outsized risk for a wealthy person to needlessly take however.
- deleted 9y ago[deleted]
- zbentley 9y ago> the fallacy, "if someone benefits, then they intended it". Slightly tangential, but neat: that fallacy has a name! It's the "Post hoc ergo propter hoc" fallacy: https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc There might be a more specific named fallacy for when post-hoc happens with regard to individuals' intentions and benefits rather than causes and effects in general though.
- chrisbro 9y agoMinor correction: Sarbanes-Oxley was introduced in 2002 after the Enron/Worldcom crises, not after the 2007/2008 financial crises: https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act https://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act
- sharemywin 9y agoDodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111–203, H.R. 4173, commonly referred to as Dodd–Frank) was signed into federal law by President Barack Obama on July 21, 2010.
- toyg 9y agoYeah SOX did nothing to moderate markets, it was just aimed at (looking like they were) purging crooks out of the system.
- aedron 9y agoDodd-Frank it was indeed, thanks.
- sharemywin 9y agoThe problem is a lot of people are momentum investing, hold and forget. kind of a variations on greater fool theory. eventually if I wait long enough someone will come along and buy this for what I paid or maybe more.
- sharemywin 9y agoI worry what if the entire market is made of fools that will buy their next slightly smaller share of the market at ever increasing prices. It used to be that traders set pricing enough that if things got out of hand then traders would come in to sell/short. But what if most people just used buy and hold?
- Spooky23 9y agoPeople are doing that because of the ridulous interest rate situation. If rates go up, that balloon will spring a leak as people move away from equities.
- AznHisoka 9y agoWhy is that a problem? Isn't "buy and hold" a sound strategy that is recommended by financial experts. Rather than "buy and constantly trade"
- creaghpatr 9y agoDepends on your time frame- there's a big difference between optimizing for year over year gains vs. 25+ years.
- EGreg 9y agoBut if this was only the US policy how come there is such a bubble in bitcoin? Is this a sign of a bubble or people trying to hedge against a crash?
- dharma1 9y agoExpansive monetary policy has happened in many places around the world, Europe, UK, Japan - not just the US. https://en.wikipedia.org/wiki/Quantitative_easing https://en.wikipedia.org/wiki/Quantitative_easing It's curious that something that was done as a measure to alleviate the effects of a previous crash is creating another bubble and (probably) another eventual crash. My guess is the explosion in money going into cryptocurrencies is partly because of that - more loose capital chasing gains - but there are other reasons behind it too. It's a combination of things. Genuine excitement of something new and potentially transformational, desire to move assets away from places they are at risk of being seized (China), FOMO, promise of Lambos, disappointment in the traditional financial system by young people, many reasons. People get excited when something goes up quickly, and it's been very easy to jump on that speculative train in the case of cryptocurrencies.
- sp527 9y agoI’d argue most of the run up in the last year is driven almost purely by price, with people embracing and then purveying the ‘Bitcoin story’ because it helps rationalize their decision and not because they necessarily understand or believe it. The funny thing is how said people often then come to genuinely believe they believe or understand Bitcoin, when in reality they’ll scatter at the first sign of a major correction. In fact, increasing conviction about an outcome after a person has paid money to bet on it is a well studied cognitive bias.
- dharma1 9y agoI think it's a mix of different reasons.. I think there is a correlation between events in North Korea and trading volume in South Korean exchanges too
- 9y ago