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"A bubble is the overvaluation of an asset class, or merely...inflation." Merely inflation? It's much more than that. It's dis-coordination within an economy.
by skylan_q 15y ago
"A bubble is the overvaluation of an asset class, or merely...inflation."
Merely inflation? It's much more than that. It's dis-coordination within an economy.
- tgrass 15y agoWhat is inflation?
- skylan_q 15y agoAn increase in the money supply in an economy.
- tatsuke95 15y agoIt's an increase in the price level. Most of the "printed money" that has been generated by the Fed since 2008 has gone to the financial sector shrinking their balance sheets by something like $3.5 TRILLION (as opposed to the Fed expanding the balance sheet by $1.5TT). That's deflationary. The Fed has been on the gas since 2008 to maintain the price level. As far as the bubble in "tech", it's a misallocation of resources. This is what happens in all the hot sectors (Tech in 1999, Housing in 2005, Tulips in 1700). There's a lot of money chasing returns that are no longer availabe. So they look for riskier assets. It's not that there are no valuable tech companies, just that there aren't enough valuable tech companies. But everyone thinks they've got a winner. Bubbles are hard to predict, hard to stop and hard not to participate in. But one thing I learned from the real estate crash: you don't take advice about the bubble from realtors.
- ryanaAM 15y agoA bubble is the overvaluation of something. Overvaluation can only occur if there is surplus value in the market that's not needed in other places. Surplus value means there's more money in circulation than the market needs - That's inflation.
- skylan_q 15y agoPrices get bid up, but price inflation is different from inflation. Price inflation is the increase in prices brought about through the auction mechanism. But in our circumstances, we get economy-wide price increases because of increases in the total stock of money. Price inflation causes money to lose value, so we can't really say there is an overvaluation simply because prices have increased. It could very well be the case that valuation hasn't drastically changed at all, but newer, cheaper money is flooding in which causes price inflation.
- eli_gottlieb 15y agoThere's obviously a market in need of that money, though. It's called the labor market. What's going on is that there are profits in the economy without an outlet for making more profits.
- tgrass 15y agoIs a home overvalued just because the bank determines it is not safe to offer a mortgage on it? Only to the bank. If I have cash and am willing to pay that amount, the home is reasonably valued/priced.
- tgrass 15y agoskylan_q: taking a step back, I'm being a bit liberal with the traditional use of inflation. Inflation is generally reserved for the 'general' price level. I don't believe we are capable of determining the 'general' price level, and the conflicts over various measures of inflation, what to include and how to modify it year to year, to my mind is evidence that it is not wholly agreed upon that we are capable of measuring it. So I assume you are suggesting that a bubble is when an industry is out of sync with the general economy, in terms of pricing and/or growth. I would argue that that is not critical to the notion of a bubble. A bubble is overvaluation of an asset class. To restrict it with dis-coordination would mean a bubble could not occur during hyper-inflation.
- skylan_q 15y agoI'll agree to the above. Thank you for the clarification. I just like to see a little bit of nuance here and there. ;)