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The Next Bubble: Priming the Markets for Tomorrows Big Crash

harpers.org — Harper's February cover story was one of clear-eyed financial journalism. Eric Janszen explains Americas devolution from goods-production to paper shuffling. The FIRE economy (for Finance, Insurance, and Real Estate) concluding it can only survive by blowing ever-bigger bubbles. Veteran political analyst show government has systematically distorted

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rpi22 63 days ago, made popular 62 days ago

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rpi22, on 05/03/2008, -5/+87At this point, the Fed is using Enron style accounting to hide losses in the financial industry. The U.S. government has been systematically distorting the economic numbers it reports to make things appear A-OK. The government no longer releases M3 money supply numbers because M3 growth is around 20%. The CPI numbers are a joke, food and energy are not included because they are 'volatile'. But when that volatility is all in one direction, UP, that's not volatility, THAT'S INFLATION!
- imacommi, on 05/03/2008, -4/+24I wish I could digg you up more than once. rpi22 hit the nail right on the head with this one; do some research and see for yourself. We need to take our country back over starting with the grass roots...the revolution will not be televised, the revolution is now!
  - Conspiracy20, on 05/03/2008, -1/+14And don't buy the "grassroots" movements get you nowhere. They're scared to death of them.
- PeppermintPig, on 05/03/2008, -3/+3Agree. The one thing that was questionable in the article was the business cycle argument. There is, perhaps, a net effect of cycles, but industry is so diverse under normal circumstances that it is not informative to make broad sweeping judgments about the economic environment. With a centrally controlled money supply, however, we can see the net effect and ripples caused by fiat money.
- Briandrews15, on 05/03/2008, -2/+3When does it start? How does it start? Who starts it? Will it be armed? ...Or will the CIA dissolve it by selling us drugs like they did to the hippies :)
- cdahlkvist, on 05/03/2008, -10/+4Okay, Devil's advocate here. I see no "big crash". I have seen property values go back to where they should be and I have seen fuel prices not even close to what they should be (we are artificially low in the US).
  
  Now, to be fair, I make great money. So I see a certain advantage here. I have been buying homes, foreclosed homes, that I plan to flip/rent (rent is a lot more work than most realize).
  
  Anyhow, I see a "return to reality here" rather than a bomb in the economy. Anyone else?
  - matt77, on 05/03/2008, -1/+4Did you read the article? The "return to reality" is a "big crash".
- bc289, on 05/03/2008, -3/+3I agree with cdahlkvist, and most on wall street would probably agree with you. If what the article author said was true, you'd think that the stock market would plummet, seeing as how there are millions of people trying to predict where the economy will go, and there's lot of money to be had if you're correct. These guys are pouring over economic data and yet the market really isn't down that much. Face it, this view that the economy will go to hell is shared by a small minority of economic experts. And yet, the common digg user predicts doom and gloom every day, based on the 2 or 3 numbers he'll read off of someone's blog.
- andy3109, on 05/03/2008, -1/+3A little doomsdayish...CPI wouldn't be as accurate if energy was counted 100%. And instead of making a blanket statement about how the FED is hiding money...show me the "cooked books"... and when did they stop reporting M3?
  - bc289, on 05/03/2008, -0/+1well, it's true that they stopped reporting M3. They stopped reporting M3 because it just isn't relevant and wasn't worth the cost of calculating the numbers. M2 is accurate enough.
- tritiumpie, on 05/04/2008, -0/+1rpi22-- you hit the nail on the head.
  Definitely do NOT trust the government's ridiculously low/contrived inflation numbers. Inflation is what reflected in the rising costs of living-- you don't need to read a gov't report to see that, take rpi22's advice: just go look at the price at the gas pump, go see how much it costs to buy milk and eggs, and remember how much less these cost 1, 3, 5 and 10 years ago.
  
  Do not think of yourselves as paid in dollars. You cannot eat dollars. You cannot put dollars into your gas tank. Dollars are merely fiat currency; pieces of paper that can be traded for actual goods. So if you really want to know the *value* of your labor, think of your paycheck as being paid in gallons of fuel, in gallons of milk, and dozens of eggs. If over time for the same pay you can buy less of these items, kindly introduce yourself to your Gov't mandated pay cut... er, I'm sorry... "weak dollar policy" (because that sounds so much nicer, and we can throw in a nice statement about how it'll be easier to export goods... feel better now?)
  
  Here's some hard numbers: I've been religiously tracking my vehicle's fuel consumption, fuel costs, etc. since I bought it in '03, and I only use the same brand of gasoline. Back then, a gallon cost $2.09. Now it costs $4.09. That's almost 100% inflation in 5 years. That's your loose monetary policy. That's Bernanke having the printing presses running non-stop night and day. And that is OUR NATIONAL PAY CUT. That's right: "pay cut". Ask yourself how much of an annual pay cut you would be willing to tolerate? Bernanke says it should be around 2%. In actuality, it's running around 20%. (There's the mirror to the now unpublished M3 growing @ 20% per annum.)
  
  Expanding a bit on the milk and eggs examples: When industrialized nations are prospering, the prices of eggs and milk actually go DOWN. Prices of all commodities go down. Why? Because of the efficiencies of scale, improved farming techniques, improved distribution, greater competition (which feeds back on itself, bringing about more efficiencies, improvements, etc)... in short, because of Progress. Whereas right now, in the US, we have the opposite situation, so... connect the dots.
  If your incomes have remained relatively the same since '03, you have effectively taken a 50% pay cut. That's a fact jack.
  
  Fortunately, my income has gone up almost the same amount that the dollar has gone down... and let me tell you, ANY extra money I have I immediately convert out of the dollar-- I work TOO DAMN HARD to make these little pieces of paper, only to have the cronies at the Fed determine that the value of my labor last week is worth less this week, and even less in the next. Screw that.
  
  There have been many, many success stories in many different ways for different countries throughout history, but know this: No country has ever achieved (or maintained) prosperity through the devaluation of its own currency.
eryximachus, on 05/03/2008, -2/+21This is a fabulous essay written by the founder of iTulip, one of the best economics websites on the web. Please digg this article up! Many people have to read this!
AlwaysAwake, on 05/03/2008, -2/+11Not just paper shuffling, but Big Mac flipping too. This "new" bubble is an old one with a shorter shelf life than most will want to imagine. In fact, it is already crashing as we can see by paying attention to what is happening all around us in our daily lives now. Forget the media and the politicians, just stop; look, and listen.
birkoph, on 05/03/2008, -9/+29See, this is what happens when you elect an idiot for a president.
- Mindzai, on 05/03/2008, -2/+11It was going to happen anyways. Electing the idiot just sped things up because he took the country to war, which put federal spending through the roof.
  - eryximachus, on 05/03/2008, -1/+7Neither you nor the OP even read the article. I realize Harper's is a bit of a challenge for high school students, but ditch the MTV politics for just 30 minutes, take some ritalin, and try to learn SOMETHING.
    - birkoph, on 05/03/2008, -3/+3This is digg, no one reads anything. 90 % of users are 12 to 16.
      - krebcycle, on 05/03/2008, -0/+1you mean 18-23, but same difference
- PeppermintPig, on 05/03/2008, -0/+16Unfortunately, this is likely to continue with the next administration.
- ewhac, on 05/03/2008, -1/+9You are referring, of course, to Reagan. Many of the policies that enabled this mess started with him.
  
  And while I'm absolutely no fan of Boy George, Clinton was not blameless, either. The dot-com run-up happened on his watch, and Greenspan was extolling the virtues of ARMs well into the 2000's.
- Ratteler, on 05/03/2008, -0/+7This is what happens when you let Billionaires force you to choose between Millionaires as your "Elected" representatives.
  Grow and raise your own food.
  Set up Windmills to make your own power.
  Set up a AlterNET over HAM radio.
  
  Abandon their system because it is now only for them.
jf317820, on 05/03/2008, -2/+9401k russian roulette FTW
mike17032, on 05/03/2008, -20/+2Chicken Little, is that you?
- Hangly, on 05/03/2008, -0/+2Do people say stupid ***** like this because they're nervous, or what? Seriously, I'm baffled.
luminus, on 05/03/2008, -3/+23This is the most important article you will read this year.
- SoulDrift404, on 05/03/2008, -0/+1Today is the first day of the rest of your life.
DavidtheDuke, on 05/03/2008, -7/+2Fun part about all this is when the dust settles, money is all in our heads, and a few less of our loved ones after it's all over.
- eryximachus, on 05/03/2008, -0/+2umm, huh? wtf are you talking about?
KBailey1734, on 05/03/2008, -12/+4Unfortunately the only way to get through this, is to increase spending, even though it doesn't seem easy, it is the only way we as a nation get survive financially. We need to get this economy thriving again!
- PeppermintPig, on 05/03/2008, -0/+4We shouldn't all be in one big boat, where the idiots at the helm squander fuel and resources. Survival requires individuals to be responsible for their actions, and not be made responsible for the bad decisions of others.
  - Jassman, on 05/03/2008, -0/+2We see the iceberg from 15 miles away
    The captain orders the ship to "stay the course"
    "Full speed ahead" shouts the accurst
    The next thing we heard was, "rich women and children first"
    The ship is listing, the captain's placing blame on the iceberg
    "That berg attacked us, I am declaring war on the Arctic"
    Who could ever have predicted the greatest ship could so easily sink (duh)
    
    -NOFX
- SoulDrift404, on 05/03/2008, -0/+1Comply, heir consumer!
twertyto, on 05/03/2008, -7/+10Attention smart people: The article is long with big words. Can someone summarize in terms stupid, lazy people can understand?
- DavidtheDuke, on 05/03/2008, -2/+21Buy gold and build a bunker.
  - mike17032, on 05/03/2008, -8/+2Because gold is worth something in a bunker right? Idiot.
    
    Smart people buy food.
    
    Smarter people buy guns then take the food and the gold.
    - phybere, on 05/03/2008, -0/+5Luckily all the smart people still have food left over from Y2K.
    - PeppermintPig, on 05/03/2008, -0/+3Immoral and foolish people use their guns to take from others what doesn't belong to them, because they couldn't reason to buy the food before it became scarce.
- phybere, on 05/03/2008, -0/+13Our economy has turned into a roller-coaster of ups and downs (bubbles rising then being popped). The next bubble is probably alternative energy.
  
  1. Invest in alternative energy
  2. Sell before the bubble pops.
  3. PROFIT!!!!1
  - contezmc, on 05/03/2008, -0/+44. Then invest in Health care as the Baby-boomer bubble comes to fruition.
    5. Lather, Rinse, Repeat.
- pak314, on 05/03/2008, -0/+10Privatize the gains, socialize the losses.
- boot20, on 05/03/2008, -0/+3Summary of the Article:
  
  We're f*cked because what we're doing now makes Teapot Dome seem positively microscopic.
- koft, on 05/03/2008, -2/+2Vote for Ron Paul in 2008.
republicker, on 05/03/2008, -15/+13ron paul ftw
XmenArt, on 05/03/2008, -0/+4http://www.helocbasics.com mentioned that there is over $1 trillion in home equity loansbeing used by americans with too much debt and means to pay that will dissapear as soon as rates go up. We're not talking pocket change any more.
mrzack, on 05/03/2008, -7/+7can the US dollar crash already, so I can sell my precious metals and buy that mansion I've always coveted.
- PeppermintPig, on 05/03/2008, -1/+2Don't you want to buy that mansion just before the crash, when people will actually accept your metals for USD (assuming the USD can even be measured), or are you going to do a direct exchange?
louiebaur, on 05/03/2008, -1/+7Good read
phybere, on 05/03/2008, -1/+2So invest in alternative energy and bail out before it crashes... I'm surprised they weren't touting nano-technology. It's kind of hard to recognize a bubble from real growth, which is why we have bubbles and crashes in the first place.
- temjrpgh, on 05/03/2008, -0/+3There's room for multiple bubbles, in fact they'll probably be stacked.
regeya, on 05/03/2008, -1/+2Well, that's a bummer, but I'm rather hopeful that, between now and then, we can put some more regulation in place. Or maybe we'll just have to form the NAU by then. Or maybe in 2012 we'll all die.
I'm just delighted that alternative energy is finally taking off. Something this seems to ignore is that we'll obviously be selling alternative energy tech to other countries, but naturally this may not be enough. I think we all understand that in all likelihood our current way of business will fail (who came up with the crazy idea of a financial system that REQUIRES inflation to be healthy?) but hopefully, it won't come to that for a long, long time. :->
lusenok2, on 05/03/2008, -1/+6Finally I can read a sane article about finances.
Thank you for posting it here.
- bc289, on 05/03/2008, -0/+1don't be misled. His views are a minority in the finance field.
WaldoX, on 05/03/2008, -2/+7war = inflation (to pay for it)
- bc289, on 05/03/2008, -0/+1in the past, yes. However, that practice has largely stopped since around vietnam. US only pays off about 3% with seigniorage.
DeFex, on 05/03/2008, -1/+13Its OK, soon all the bubbles will overlap and it will balance out, it will be called "froth"
HanSolo69, on 05/03/2008, -2/+3Tomorrow??!!!??? But that's...tomorrow!
tinygibbles, on 05/03/2008, -4/+4The best part of the article, if you read it to the end, is the prediction that the next bubble must be alternative energy. This would be a constructive bubble, like the internet bubble, not a destructive one like the real estate bubble.
- ewhac, on 05/03/2008, -0/+4One might have argued at the time that the real estate run-up was constructive. New homes were being built, and new people were enjoying the benefits of home ownership -- one of the concrete manifestations of the American Dream(TM). Trouble was, it was all paid for by fake money.
  
  I can't immediately imagine what an alternative energy sector paid for with fake money will look like after that bubble pops, but history suggests it, too, will not be pretty.
  - chemdiva, on 05/03/2008, -0/+2Maybe it'll look something like too many food crops being converted to corn for fuel?
Murrabbit, on 05/03/2008, -2/+14Oh hey, when we send all our jobs to 3rd world nations then we ourselves slowly become a 3rd world nation, who would have thought!
ewhac, on 05/03/2008, -0/+8A very enlightening article. But lately I find my mind more occupied with practical matters. Such as, how do I A) avoid losing my job, and B) pay the rising prices of food and energy?
CallMeASeeker, on 05/03/2008, -1/+3Brilliant Article on speculation and bubbles and also how they relate to government spending and the money supply . Warren Buffet had predicted a bubble with mortgage based derivates in 2002 going as far describing them as financial weapons of mass destruction. Oracle of Omaha be damned the real estate mortage horse had bolted the stable. See this article at http://yourmoneyourworld.blogspot.com/2008/04/orac ... Also has the link to the 2002 annual report on the Berkshire Hathaway site. A green energy bubble is needed right now to get some money into green infrastructure. As an investor i would see this as awarning to know when to get in or out of green stocks/funds etc etc
CallMeASeeker, on 05/03/2008, -2/+0Brilliant Article on speculation and bubbles and also how they relate to government spending and the money supply . Warren Buffet had predicted a bubble with mortgage based derivates in 2002 going as far describing them as financial weapons of mass destruction. Oracle of Omaha be damned the real estate mortage horse had bolted the stable. See http://yourmoneyourworld.blogspot.com/2008/04/orac ... for Warren Buffet's in BH annual report
franksalvo, on 05/03/2008, -0/+4So, basically, we generate a cycle of booming wealth followed by recession, then back to booming wealth. Alternative energy (or "sustainability") is the next big thing. They hope to drive the market toward energy investments as quickly as possible. This will create growth to offset the current economic decline.

So, we know that after we have tapped out the alternative energy market, we need to find a new boom. Maybe it will be health care or space exploration. Who knows. The thing is, the markets would grow on their own given strict supply and demand economics. Growth would be much slower, but in the end, if the author is correct in saying the markets "return to the mean," we will end up where we would have ended up naturally without all the manipulation.

Not sure why we do this. My instict is to believe this is how "rich get richer,: but there may be a more elegant explanation.
silikon2, on 05/03/2008, -5/+10Are Diggers a magnet for "omg we are doomed" stories? Maybe I'm just old enough to have seen enough sky is falling stories to realize no one knows what the future will bring. Call me after the collapse has happened to let me know. Predictions like this are little better than reading your horoscope.
Qong, on 05/03/2008, -2/+8What's the problem?
Bubbles are a part of a free market. When people have the freedom to do with their resources as they wish, they can and do create bubbles that will most certainly burst at some point. The question that you have to ask yourself is this: What is more regulation going to do for us?
Regulation restricts the freedom of individuals and lets those with power and political pull to have their way. It also leads to an even more bloated and wasteful government than we have now. It also adds an immense amount of stress on businesses that operate outside of those bubbles, businesses that play no part in them, yet they still have their businesses restricted and regulated.
- eryximachus, on 05/03/2008, -1/+2Yet another poster who didn't read the article. Why, oh why can't digg readers just use their brains for a brief period of time?
  
  Fractional reserve lending and fiat currency have nothing to do with free market economics. Such a system is only possible due to the misuse of state power.
  - Qong, on 05/04/2008, -0/+1I read the article.
    I was mainly replying to the various comments suggesting that markets need more regulation to prevent bubbles from happening. I also fully realize and understand what fractional-reserve banking and fiat money is, you should also realize that these concepts are not at all new and have been in place for many years now, and work perfectly fine. I can only assume that you are a Ron Paul supporter... Go for the Gold, am I right?
    
    My points still remain though: Bubbles are perfectly fine and would indeed happen no matter what our currency was based on, and no matter what our lending practices were based on. The people that have money and want to make more will continue to pool their money into places that they believe they can make the most profit over a certain period of time; people will of course have the same ideas or follow each other into these positions; the result, my friend, is a bubble.
darrenwhite76, on 05/03/2008, -4/+0With the down turn in the US economy, is it time to look else where for work?
Is Asia the place to find work now?
Are international skills more important than ever?
Is Teaching an answer?

http://www.cambodialanguagecorps.com

http://www.thailandlanguagecorps.com

http://www.vietnamlanguagecorps.com
- mike17032, on 05/03/2008, -3/+1Nice work libtard fear mongering jackoffs, now the spammers know where to come and what to say because these kind of stories are so ***** predictable on digg.
andy3109, on 05/03/2008, -4/+4AHHHH DOOMS DAY BUILD FALLOUT SHELTER NOW!!!

/sar
Hillsfar, on 05/03/2008, -0/+3I read the article back in February. Re-read it at least twice. Just so informative. I just don't know if we'll actually have an alternative energy bubble unless we have the governmental impetus - Presidential and Congressional. (Personally, I don't think McCain would do it.) Unless oil just keeps going up and up... to $200 a barrel by 2012.
yedrellow, on 05/03/2008, -1/+0The funny thing about crashes is that convincing people that they will occur is probably the largest factor in determining whether they occur. An interesting self-fulfilling prophecy to say the least.
usgovterrorists, on 05/03/2008, -1/+3Play Wall Street like a PONZI SCHEME!
LeeMcK, on 05/03/2008, -0/+0This article is "thought provoking" but it must be seen in the longer view: The American economy is having a series of boom-busts but underneath there are layers of problems that also must be addressed. I wish another writer of Peter Drucker's skill would come to my attention.
I think the direction of regulation should be to tilt our society back towards a cash society and away from a credit society. I'd like to see market values close to construction costs, credit card terms always leading to payoff in 6 months. This would mean vastly smaller sums of money entering the banking community and much less of a credit card and bill paying treadmill for working people.
Hangly, on 05/03/2008, -0/+5That was astoundingly well-written.
gergle, on 05/03/2008, -1/+4The article describes bubbles, but I never trust anyone who tells me about how they predicted history. I was immediately disturbed by this assertion:

Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences.

The 18th and 19th century were replete with boom and bust US economies every few years. If he can't get the basic history right what else is wrong here?
ColonelJessup, on 05/03/2008, -0/+1Here we go again with the Digg.com economic professors.............................
gootecks, on 05/03/2008, -0/+1Great article, very enlightening!
stealthc, on 05/03/2008, -1/+3Way to finally realize what people like Ron Paul have been telling you for decades. Isn't the little economist JUST SO SMART.

Pardon me for being just a *little* bitter that people didn't see this when the actual economists were warning them about it.
ATCclears, on 05/03/2008, -0/+2Thx, that is a thought-provoking article. Who knows what the future will bring...

A tidbit on Wall Street and the financial-services firms. The firms like to promote "wealth preservation" with their clients, but a friend who used to work in the same firms said they were really promoting "wealth extraction" (ie., they will get a percentage of your money regardless of their performance). Ponder it when making future decisions on your 401k, investments, etc.
gak001, on 05/03/2008, -0/+2Here's an idea... let's take all that money we're blowing on Iraq and spend it on improving our own infrastructure and alternative energy. Job creation and new production in America - it's a win-win for the economy.
LoriWms, on 05/07/2008, -0/+0It's a great financial history in a nutshell.
Segama, on 05/08/2008, -0/+0hmmm.... interesting analysis....
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The Next Bubble: Priming the Markets for Tomorrows Big Crash

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