Bubbles are followed by echo-bubbles, and the bursting of the second bubble ends the speculative cycle.
If we have learned anything in the past 20 years of massive asset bubbles and equally massive declines when the bubbles finally pop, it’s this: those caught up in the expansionary phase of the bubble cannot believe the bubble that’s rewarding them so richly could actually burst.
This psychology of mass delusion now dominates housing, stocks and bonds: not only is this not a bubble, the expansion will continue forever.
History, however, suggests otherwise: all bubbles burst, period.
As the generational war heats up, we should all remember the source of all the bubbles and all the policies that could only result in generational poverty: the Federal Reserve.
Federal Reserve chair Janet Yellen recently treated the nation to an astonishing lecture on the solution to rising wealth inequality–according to Yellen, low-income households should save capital and buy assets such as stocks and housing.
It’s difficult to know which is more insulting: her oily sanctimony or her callous disregard for facts. What Yellen and the rest of the Fed Mafia have done is inflate bubbles in credit and assets that have made housing unaffordable to all but the wealthiest households.
We discuss ‘American Psycho’ type banker murderers roaming the streets beheading prostitutes. While in the central banks, we see ‘corporatism’ as defined by the World Bank in the 80s and 90s – and that is a balance sheet greater than 25% of GDP. In the second half Max interviews Professor Steve Keen and artist Miguel Guerra about their new crowdfunded graphic novel series – CRASH, BOOM, POP – where economics will be fun to learn. Professor Keen promises Max a naked Margaret Thatcher to keep with the genre. They also discuss the godzilla in the Japanese central banking consuming any debt the population throws at it and where this might lead for the final global debt showdown.
Tagged with: bitcoin
, housing bubble
, market bubble
, miguel guerra
, minsky moment
, steve keen
There is nothing remotely “normal” about the echo-bubble’s rise, and we can anticipate that its deflation will be equally abnormal.
Conventional wisdom on the resurgence of the housing markets takes one of two paths:
1. Housing is not in a bubble, it is merely returning to “normal”
2. Housing is bubbly in some markets, but prices will continue to rise
Here’s an alternative view: housing is in an echo-bubble that’s popping.Courtesy of the excellent Market Daily Briefing, here are some charts that make the case that the housing echo-bubble was just another Federal Reserve-induced speculative asset bubble that’s popping, like every other speculative bubble in recorded history.
As rents climb, developers large and small take out their calculators and dreams of wealth blossom: but no, this is not bubble.
The disastrous blowback from inflating housing bubbles is painfully obvious: as housing becomes unaffordable, households impoverish themselves to “get in now before it’s too late;” malinvestment (i.e. McMansions in the middle of nowhere) flourishes as housing becomes a speculative financial vehicle rather than shelter; retirement funds are sold designed-to-default mortgage-backed securities, and when the bubble finally pops, those lured into buying at the top are left underwater, owing more on their mortgage than their house is worth.
But there is one silver lining to housing bubbles: some of the money squandered in the speculative frenzy ends up rehabilitating old buildings or erecting new housing in useful locales.
American citizens already have a hard enough time affording a home. Squeezed out by financial oligarchs buying tens of thousands of properties for rental income, and faced with real wages that haven’t budged since the mid-1970s, the demographic of U.S. citizens that historically dominated the new home market has been forced to live in their parents’ basements. Just to kick em’ when they’re down, Americans now face the impossible task of competing with laundered Chinese money.
It appears the only people not buying American real estate are Americans needing a place to live.
Read more here.
Institutionalizing the speculative excesses that inflated the previous housing bubble has fed magical thinking and fostered illusions of phantom wealth and security.
The global housing market has been dominated by magical thinking for the past 15 years. The magical thinking can be boiled down to this:
A person who buys a house for $50,000 will be able to sell the same house for $150,000 a few years later without adding any real-world value. The buyer will be able to sell the house for $300,000 a few years later without adding any real-world value. The buyer will be able to sell the house for $600,000 a few years later without adding any real-world value.
Barely a day goes by anymore when I’m not confronted with a slew of articles flashing warning signs about the latest Federal Reserve fueled credit bubble. Just yesterday, I highlighted the investor feeding frenzy happening in junk bonds, driving yield spreads to the lowest levels since the prior peak year of credit exuberance in 2007 in my post: Credit Mania Update – The Chase for CCC-Rated Bonds.
Today, I am going to highlight two articles on very different aspects of the credit market, but both are illustrative of the investor buying panic happening in debt markets. All of this is terrifying, and it appears to represent the final stages of another crackup boom. One that is likely to implode sometime in 2015…
Read the rest here.
We discuss the warning from legendary stock market speculator, Jesse Livermore, that speculation is “not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” And, yet, speculation has become the economic model for a nation of stupid and mentally lazy speculator-taxpayers. We also discuss splat collateralized debt obligations and fracking Walden Pond to pay off our bad debts. In the second half, Max interviews Steve Keen, author of Debunking Economics, about housing bubbles, falling wages and why Mom & Pop investors are always wrong.
Submitted by Michael Krieger of Liberty Blitzkrieg.
With interest rates up sharply from the lows and Blackstone and other private equity firms holding billions of dollars with of properties with no one to sell to, the time is ripe for a little muppet fleecing. Leading the charge to find new tax-payer backed subprime loans to take some properties off the hands of Mr. Schwarzman is none other than Wells Fargo. I previously forecasted this in my piece: Stage Two of the Housing Bubble Begins: Blackstone to Lend to Others for “Buy to Rent.”
This Central Bankster game isn’t complicated. Provide access to cheap funds to financial cronies, pump the bubble, fleece the serfs. Rinse. Repeat.
Read the rest here.
The elimination of low-risk interest income in favor of risky speculative credit/asset bubbles has led to a monumental misallocation of capital and the institutionalization of perverse and highly corrosive incentives.
The stagnation afflicting advanced economies has several fundamental causes.
1. The dynamic between rising productivity, higher labor costs and technology replacing human labor has shifted decisively in favor of labor-saving technology: the low-risk, high-yield way to increase productivity and profitability is to replace high-cost human labor with software, automation and robots.
This is true whether the labor being replaced costs $10 a day or $100 a day: the machine can produce the output faster, better and cheaper.
This leads to a conclusion that undermines all existing capitalist/socialist models:wages are no longer a practical means of distributing the surplus generated by the economy.