6 ms·

I think this bubble is primarily fueled by central banks making money available to primary dealers basically for free. This is unlike the New Economy bubble whe

I think this bubble is primarily fueled by central banks making money available to primary dealers basically for free. This is unlike the New Economy bubble where the money came from peons who invested in stocks. As soon as the central banks (the Fed in particular) step on the brake, it's over. Thus, lots of truth in what this guy says.

steveplace 15y ago
Brought to you by zerohedge (c)
- jswinghammer 15y ago
  This analysis is a fairly straightforward Austrian perspective. I would only qualify it to say that this would apply to publicly traded stocks. It's been observed throughout the 19th/20th/21 century versions of the business cycle that stocks tend to rise along with the boom only to seriously correct in the bust. The funding prior to this latest IPO spree is largely the result of capital not having a lot of good homes in the US economy these days. This is partially the result of low interest rates but also having a heavy regulatory burden on new industry which doesn't exist in IT.
  - MaysonL 15y ago
    Also of course, the fact that we're in the 4th or 5th year of the Little Depression, and national income is still down from its peak.
hollerith 15y ago
That cannot be the whole story because even if they get the money interest-free, investors are not going to invest in start-ups or venture funds unless they believe they can a better return there than they can in other investments.
- jswinghammer 15y ago
  If you knew that if you lost more than 10% then it wouldn't matter to you because a bailout would be required you'd probably do a lot of things that don't seem rational from your current perspective.
- TheSkeptic 15y ago
  When the central banks pump money into economies, it has a cascading effect that influences the behavior of investors directly and indirectly. Take a wealthy individual who is a limited partner in several VC funds. Like most wealthy individuals, he has investments across numerous asset classes. Many of those asset classes (equities, commodities, etc.) are heavily impacted by the Fed's policies. Needless to say, this individual is far more likely to feel comfortable pouring some money into a new VC fund he has been pitched when his other investments are doing well courtesy of Helicopter Ben's printing press. Without willing investors, VC firms can't raise new funds and certainly, had there not been a massive pumping of cheap money into the global economy from the central banks, many of the massive VC funds, more than a few of which are being used to buy up shares in companies like Facebook and Zynga, would not exist.
  - timr 15y ago
    "Take a wealthy individual who is a limited partner in several VC funds. Like most wealthy individuals, he has investments across numerous asset classes. Many of those asset classes (equities, commodities, etc.) are heavily impacted by the Fed's policies. Needless to say, this individual is far more likely to feel comfortable pouring some money into a new VC fund he has been pitched when his other investments are doing well courtesy of Helicopter Ben's printing press." That's just exactly wrong. "Helicopter Ben", as you oh-so-blithely put it, is injecting money into the economy (as was Greenspan -- a famous conservative -- who started the process). This tends to lower interest rates across all sorts of different asset classes. It's a big part of the reason that savings accounts are returning <<1%, and why people have been taking their chances on ever-riskier investments for the better part of two decades. They can't get returns in safer asset classes. People aren't investing in VC funds because they "feel comfortable" -- they're investing in VC funds because they can't match the inflation rate in anything better. Nobody invests in a high-risk asset if they can get great returns in a low-risk asset, no matter how "comfortable" they may feel.
j_baker 15y ago
Am I the only one who gets tired of hearing the exact same token Austrian economics complaints about the Fed lowering interest rates every time a story that remotely deals with the economy come up?
- ojbyrne 15y ago
  No, you're not. But in this case, the parent has a point. Or at least half a point. And you get the other half. In most countries, governments largely pander to the middle and lower classes, because that's where the votes are. As a result, the election cycles usually involve large government outlays leading up to elections. The media also tends to pander to the middle/lower class. In the United States, governments largely pander to the top 1% of incomes because a. the billionaire class has figured out how to craft a message to the middle/lower classes where they think they're being screwed by the government, and the proper response is to reduce the size of government. b. the government keeps growing, but their focus is entirely on making the tax system more regressive. c. the billionaire class has more control over the government, and ensures that more dollars go to them, and less to the middle lower class. d. the media does the exact same thing as the government. e. because the government is actually screwing the middle class, we can go back to (a) and repeat the cycle. If you doubt what I'm saying, you really need to read the writings of the most important member of the Austrian school of economics... Grover Norquist: http://en.wikipedia.org/wiki/Starve_the_beast http://en.wikipedia.org/wiki/Starve_the_beast
  - MaysonL 15y ago
    If you doubt what I'm saying, you really need to read the writings of the most important member of the Austrian school of economics... Grover Norquist: while remembering that Mr. Norquist is one of the more zealous servants of the billionaire class.
  - berntb 15y ago
    Fascinating theory about why the US is different from the rest of the western world. How does the UK relate, it seems to have some of the same differences?

steveplace 15y ago

Brought to you by zerohedge (c)

jswinghammer 15y ago
This analysis is a fairly straightforward Austrian perspective. I would only qualify it to say that this would apply to publicly traded stocks. It's been observed throughout the 19th/20th/21 century versions of the business cycle that stocks tend to rise along with the boom only to seriously correct in the bust. The funding prior to this latest IPO spree is largely the result of capital not having a lot of good homes in the US economy these days. This is partially the result of low interest rates but also having a heavy regulatory burden on new industry which doesn't exist in IT.
- MaysonL 15y ago
  Also of course, the fact that we're in the 4th or 5th year of the Little Depression, and national income is still down from its peak.

hollerith 15y ago

That cannot be the whole story because even if they get the money interest-free, investors are not going to invest in start-ups or venture funds unless they believe they can a better return there than they can in other investments.

jswinghammer 15y ago
If you knew that if you lost more than 10% then it wouldn't matter to you because a bailout would be required you'd probably do a lot of things that don't seem rational from your current perspective.
TheSkeptic 15y ago
When the central banks pump money into economies, it has a cascading effect that influences the behavior of investors directly and indirectly. Take a wealthy individual who is a limited partner in several VC funds. Like most wealthy individuals, he has investments across numerous asset classes. Many of those asset classes (equities, commodities, etc.) are heavily impacted by the Fed's policies. Needless to say, this individual is far more likely to feel comfortable pouring some money into a new VC fund he has been pitched when his other investments are doing well courtesy of Helicopter Ben's printing press. Without willing investors, VC firms can't raise new funds and certainly, had there not been a massive pumping of cheap money into the global economy from the central banks, many of the massive VC funds, more than a few of which are being used to buy up shares in companies like Facebook and Zynga, would not exist.
- timr 15y ago
  "Take a wealthy individual who is a limited partner in several VC funds. Like most wealthy individuals, he has investments across numerous asset classes. Many of those asset classes (equities, commodities, etc.) are heavily impacted by the Fed's policies. Needless to say, this individual is far more likely to feel comfortable pouring some money into a new VC fund he has been pitched when his other investments are doing well courtesy of Helicopter Ben's printing press." That's just exactly wrong. "Helicopter Ben", as you oh-so-blithely put it, is injecting money into the economy (as was Greenspan -- a famous conservative -- who started the process). This tends to lower interest rates across all sorts of different asset classes. It's a big part of the reason that savings accounts are returning <<1%, and why people have been taking their chances on ever-riskier investments for the better part of two decades. They can't get returns in safer asset classes. People aren't investing in VC funds because they "feel comfortable" -- they're investing in VC funds because they can't match the inflation rate in anything better. Nobody invests in a high-risk asset if they can get great returns in a low-risk asset, no matter how "comfortable" they may feel.

j_baker 15y ago

Am I the only one who gets tired of hearing the exact same token Austrian economics complaints about the Fed lowering interest rates every time a story that remotely deals with the economy come up?

ojbyrne 15y ago
No, you're not. But in this case, the parent has a point. Or at least half a point. And you get the other half. In most countries, governments largely pander to the middle and lower classes, because that's where the votes are. As a result, the election cycles usually involve large government outlays leading up to elections. The media also tends to pander to the middle/lower class. In the United States, governments largely pander to the top 1% of incomes because a. the billionaire class has figured out how to craft a message to the middle/lower classes where they think they're being screwed by the government, and the proper response is to reduce the size of government. b. the government keeps growing, but their focus is entirely on making the tax system more regressive. c. the billionaire class has more control over the government, and ensures that more dollars go to them, and less to the middle lower class. d. the media does the exact same thing as the government. e. because the government is actually screwing the middle class, we can go back to (a) and repeat the cycle. If you doubt what I'm saying, you really need to read the writings of the most important member of the Austrian school of economics... Grover Norquist: http://en.wikipedia.org/wiki/Starve_the_beast http://en.wikipedia.org/wiki/Starve_the_beast
- MaysonL 15y ago
  If you doubt what I'm saying, you really need to read the writings of the most important member of the Austrian school of economics... Grover Norquist: while remembering that Mr. Norquist is one of the more zealous servants of the billionaire class.
- berntb 15y ago
  Fascinating theory about why the US is different from the rest of the western world. How does the UK relate, it seems to have some of the same differences?