Maybe This Is Why We Now Have a Serial-Bubble Economy (September 5, 2013)
Who benefits from serial bubbles? The financial sector and the central government.
If there is any one strikingly obvious feature of the U.S. economy in the past 15 years, it's the serial asset bubbles, one after another. Take a look at this chart:
Why did our economy become dependent on asset bubbles for "growth"? One way to find an answer is to ask: cui bono, to whose benefit? Correspondent Jeff W. has the answer: the financial sector and the central government.
Here is Jeff's commentary.
We should always bear in mind how lucrative asset bubbles are for the banks, the government, and super-wealthy insiders. The banks make money by loaning to speculators because their collateral gets a boost. As collateral is boosted, they can make loans to borrowers who are poor credit risks (no job, no income liar loans). Government makes money by taking a cut of speculative profits through taxes. Clued-in insiders get to ride the bubbles up and down, getting advance signals of the turns.
Thank you, Jeff. I would add that the serial-bubble economy has a pernicious appeal to debt-serfs and those with minimal financial capital, because each bubble holds out the promise that any debt-serf who manages to catch the ride up and exit at the top can vastly increase his/her wealth, just like the top 1/10th of 1%.
But timing the bubble is not necessarily easy (except in hindsight), and the state of mind required to sell when everyone else is buying must overcome powerful forces in human psychology: the herd instinct, greed, confirmation bias, etc.
Those enabling and extending the bubbles know very few participants will overcome greed and the herd instinct and sell near the top; rather, they will become bagholders of phantom assets that quickly lose value, leaving only the debt to service.
To escape the crushing burden of debt (except for student loans, which are fiendishly difficult to escape), the bagholders must sell out, losing whatever wealth they might have had. Those who sold early have cash to buy the assets on the cheap. If the assets no longer have value, that's OK, too--the money has already been made originating and offloading the debt that was borrowed to buy the assets.
As the saying goes, rinse and repeat. No wonder the serial-bubble model is so attractive to
the Powers That Be.
Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:
1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
5. Technological, financial and demographic changes in our economy
Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of
the same coin: once we accept responsibility, we become powerful.
To receive a 20% discount on the print edition: $19.20 (retail $24), follow the link, open a Createspace account and enter discount code SJRGPLAB. (This is the only way I can offer a discount.)
NOTE: gifts/contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
Or send him coins, stamps or quatloos via mail--please request P.O. Box address.
Subscribers ($5/mo) and contributors of $50 or more this year will receive a weekly email of exclusive (though not necessarily coherent) musings and amusings.
At readers' request, there is also a $10/month option.
What subscribers are saying about the Musings (Musings samples here):
The "unsubscribe" link is for when you find the usual drivel here insufferable.
All content, HTML coding, format design, design elements and images copyright © 2013 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.
I am honored if you link to this essay, or print a copy for your own use.
Terms of Service: