…But not the bubble you haven’t lived through.
Seriously, I doubt there are many 30-somethings as insightful as you. Young people will be blindsided by the next pop of the bubble. You may lose your job; yes, even you, young genius that you are! I’m not much older than you, but 20 years makes a difference because I was an adult before and after 2000 (and 1987).
What do I see that you don’t see? You hinted at it with this, “ I don’t know of any part of the Internet bubble that was amenable to this, for example” You’re right. Even though the tech stocks crashed spectacularly, technology wasn’t going anywhere. No one was going back to pen and paper. The result of that crash wasn’t going back to the gold standard either, it was the first post-WWII separation of economic classes (based on tech adoption). The first batch of tens of millions of Americans were bankrupted because the economy cooled. The rest, in the cities, worried about their jobs, or lost them for a bit, but bounced back.
Then the ones who survived 2000 started a new game. Real estate investment. You can’t live in a stock, but you have to live somewhere…a house! What an insight! What Progress! Keep in mind that the real estate asset is financed by the winners of 2000. Who knew so many “losers from New Jersey”, as we called those unsophisticated people who drove into Manhattan for the night club scene in the 1980s, would get in on the game.
Then 2008 happens. Naturally, those running the game determine who is blamed more, the person making the LIAR loan or the person taking it. I would quibble with your analysis in that the pair trade was risky because most people, prior to 2008, wouldn’t believe the government would be so cruel as to really throw tens of millions of Americans out of their homes. But happen it did!
Default is what the government should have allowed to happen in a fair-debt world. Instead, the government went from needing $50 billion to fix the problem to ending up with $4 trillion on its balance sheet, 10 years later! It’s logic was the market mechanics had to be saved to protect workers; that is, a bank run had to be prevented. It knew that not every worker would benefit from that approach, so Congress was expected to create infrastructure projects for the rest of the country. Didn’t happen.
Bubble cities were born in 2008. And so begins… https://www.poetryfoundation.org/poems/43290/the-second-coming
No, I’m not arguing that QE was wrong, or people were screwed, or any of that. I am simply stated a simple fact. In the end, the 2008 bubble fix favored the lenders over the borrowers.
When I was young I would read of the pre WWII British being class snobs. From the American’s wild-west, independent mind-set, they seemed so ridiculous. Yet here we are. Like the Brits, we can’t see ourselves objectively. The elite can’t see their culpability in the homeless living under bridges feet from where they work.
The bubble we’re experiencing now is in every financial asset class the tech winners own, stocks and real estate. You’d think the election of an imbecile to the President of the entire country would motivate techies to worry more about governance than the next unicorn. “Let them eat cake” of course!
When the current assets prices pops, which are fundamentally priced above real-wage income, the winners will be halved again. Some of your friends; again, maybe you.
You generation has more debt than previous generations. Your parents are also older and less productive. Other nations are coming close to military parity with the U.S. There are scores to be settled.
What I’m saying is that in the next crash there is no pair-trade to your tech career. There is no China to exploit, to profit the arbitrage of your ideas plus their cheap labor. There will simply be those who own the tech that people must have to function and everyone else (in tech marketing say), a growing number of very unhappy people you can’t see in the bright gleaming cities.
Those people drive Brexit, they drive the Tea Party and they drive the Chinese, Japanese, and rest of Asia, to worry, as they should, that their whole society can go horribly wrong. And I mean horribly in a way few Americans read about.
I hope you do another article (if you’ve read this far) where you think about what comes next after the next crash? The Fed can’t lower interest rates. All it can do it take on more debt? If t-bill holders would let it again. Or will it let everyone default this time? Will much of student, automobile, etc., debt be written off?
Of will something happen that you only read about in history books?
Or will the losers be happy to smoke weed, play video games, and sometimes live in tents and get $1,000 a month guaranteed income.
Again, I look forward to your next piece on this subject! For my taste, a pinch more of the violence history suggests.
