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The notion that bubbles are not all equally bad, and that bubbles fueled primarily by debt tend to be the worst, seems reasonable on the surface, but it's not a

The notion that bubbles are not all equally bad, and that bubbles fueled primarily by debt tend to be the worst, seems reasonable on the surface, but it's not always so easy to separate bubbles into two camps: those fueled by exuberance and those fueled by debt. Margin debt, for instance, has increased significantly in China[1] and in the US, stock buybacks financed by debt offerings have been a prominent feature of the current bull market[2]. Central banks have taken so much unprecedented action since 2008 that it requires a lot of faith to rely on analyses of past bubbles to predict what will happen when the current ones burst. [1] http://www.bloomberg.com/news/articles/2015-04-13/china-walks-264-billion-tightrope-as-margin-debt-powers-stocks http://www.bloomberg.com/news/articles/2015-04-13/china-walk... [2] http://fortune.com/2015/02/11/stock-buyback-binge/ http://fortune.com/2015/02/11/stock-buyback-binge/

danieltillett 11y ago
Yes we are in rather unchartered waters because of all the central bank buying. It is very hard to use build models based on past data when considering the actions of the worlds central banks over the last 8 years.
themartorana 11y ago
Isn't this talking about personal debt, though? When they talk about the wealth effect in a stock market crash, it's pushing down on personal assets that are made up of saved money. In contrast, the housing crisis of 2008 (from which we are still collectively suffering) was preceded by people taking on massive personal debt well beyond their ability to actually handle, and many times larger than actual savings. The following burst has a pile-on effect, in that those already debt burdened don't simply lower spending habits, but rather fall into bankruptcy, default on mortgages and other loans, and so on, which puts a years- if not decades-long drag on economic activity.
lingben 11y ago
> Margin debt, for instance, has increased significantly in China It is even more insidious than that. Chinese companies have pledged their stocks as collateral for loans so the whole thing is a pile of circular promises, one built on top of the other. This is the real reason why the Chinese authorities suspended so many shares from trading before they stabilized the market. If the shares had continued to go down, it would have resulted in a massive credit crisis since billions and billions in loans would go into default. For more details see: http://www.bloomberg.com/news/articles/2015-07-08/this-is-why-so-many-chinese-companies-are-suspended http://www.bloomberg.com/news/articles/2015-07-08/this-is-wh...

danieltillett 11y ago

Yes we are in rather unchartered waters because of all the central bank buying. It is very hard to use build models based on past data when considering the actions of the worlds central banks over the last 8 years.

themartorana 11y ago

Isn't this talking about personal debt, though? When they talk about the wealth effect in a stock market crash, it's pushing down on personal assets that are made up of saved money. In contrast, the housing crisis of 2008 (from which we are still collectively suffering) was preceded by people taking on massive personal debt well beyond their ability to actually handle, and many times larger than actual savings. The following burst has a pile-on effect, in that those already debt burdened don't simply lower spending habits, but rather fall into bankruptcy, default on mortgages and other loans, and so on, which puts a years- if not decades-long drag on economic activity.

lingben 11y ago

> Margin debt, for instance, has increased significantly in China It is even more insidious than that. Chinese companies have pledged their stocks as collateral for loans so the whole thing is a pile of circular promises, one built on top of the other. This is the real reason why the Chinese authorities suspended so many shares from trading before they stabilized the market. If the shares had continued to go down, it would have resulted in a massive credit crisis since billions and billions in loans would go into default. For more details see: http://www.bloomberg.com/news/articles/2015-07-08/this-is-why-so-many-chinese-companies-are-suspended http://www.bloomberg.com/news/articles/2015-07-08/this-is-wh...