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  • The Last Bubble

    The Last Bubble

    by Eric Janszen


    Written for the German broadsheet daily



    Oct. 2, 2008

    That was it. The housing boom. The leveraged buy-outs. The high flying hedge funds. Mega houses. Super cars. Big dreams of endless credit. All gone. All over. Done, once again.


    A fantasy creation of the latest grand experiment in global Ponzy capitalism. A Disney world of wealth produced by debt.

    This last great credit bubble grew since 1980 until its peak in 2007 when nearly US$5 of new debt was needed to fund a single dollar of US national income growth up from US$1 a generation before.

    It started when the US abandoned the international gold standard in 1971, replaced with a global monetary regime based on dollars that the US could issue in unlimited supply. Nations outside the US created dollar demand and value not as a reward to the US for a positive balance of trade but for lack of other international pricing and transaction options. As demand for dollar denominated financial assets grew, the market price of finite global commodities, such as oil, was distorted downward, interest rates declined, money became cheap.

    Cheap money funded asset bubbles. The LBO bubble of the late 1980s. The 1990s technology bubble. The 2000s housing bubble.

    The era of cheap credit to fund asset price inflation ended with the crash of the securitized debt market in the spring of 2007.

    The physical world left behind will be with us for decades, the way the credit bubble of the 1920s haunted us with its images of excess through The Great Depression, WWII, the Soviet era, all the way into the 1980s in some nations before the wave of socialization and nationalization receded and market economies recovered, before finance capitalism arose once again.

    As we face the economic wreckage of the second credit bubble in a century to rebuild, our leaders will promise restoration of the mirage. But our old debt based reality was a fantasy, a dream. We have no more chance to recreate it than we have in the morning after waking from a lovely dream to fall asleep again back into it while the alarm is ringing.

    To preserve the great institutions of American capitalism, government will need to cut tax subsidies to non-productive industries, such as real estate, become less dependent on borrowing and domestic consumption, encourage saving and investment, and reallocate financial and human capital to rebuild America’s physical and economic infrastructure, a new economic foundation that nurtures the next generation of globally competitive American private enterprise.

    In a decade, after our economy recovers, the history books will echo the age-old refrain “what were we thinking?”

    Eric Janszen is the Founder & President of iTulip, Inc., previously CEO of Bluesocket, Inc. and Autocell, Inc., EIR Trident Capital, Managing Director Osborn Capital.
    Ed.

  • #2
    Re: The Last Bubble

    So erhem... How can this be the last bubble (which I agree) if you in Harper's magazine talk about the next infrastructure / alternative energy bubble?

    EJ, did you underestimate the size of this bubble's pop? Am I not understanding your Harper's thesis somewhere? (I'll admit, I'm a newbie), or can you confirm a new outlook based on recent events?

    Love your site and especially the intelligent user comments - Thanks for sharing (everyone!)

    Adeptus.
    Warning: Network Engineer talking economics!

    Comment


    • #3
      Re: The Last Bubble

      Adeptus

      In EJ's Harper's Magazine piece, I thought he said the "new" economy will be based on alternative energy, infrastructure etc. He said it doesn't have to be in the form of a bubble. It may be a bubble but this isn't 100% certain.

      Comment


      • #4
        Re: The Last Bubble

        With respect to the forum quoted, Dos iz alts!

        Yiddish for 'that's it, it's all over, it's gone..."

        :cool:

        Comment


        • #5
          Re: The Last Bubble

          Originally posted by Wild Style View Post
          Adeptus

          In EJ's Harper's Magazine piece, I thought he said the "new" economy will be based on alternative energy, infrastructure etc. He said it doesn't have to be in the form of a bubble. It may be a bubble but this isn't 100% certain.
          Key question is how long? or how fast to get there?

          In his harpers article, EJ hints at one last big push to get this new bubble rolling before the collapse of the previous ones makes it not possible.

          I'm wondering if he still thinks that is possible.

          I personally think so, the more things change, the more they stay the same. (There is ALWAYS going to be a bubble in a FIAT capitalist system SOMEWHERE.) The question is can you get on the train before it takes off and get off before it crashes)

          The argment seems to be if all the trains have crashed, what are you going to catch a ride on?

          I think that people should remeber ONE THING.

          It takes an extrodiary amount of credit to finance the "next bubble".

          The source of that credit is usually in response to a "crisis" like LTCM, Asian currency crisis, Latin amercian debt crisis, etc, etc. So, from where I'm sitting, we've got our crisis, and soon we will have our huge influx of new credit in response to that crisis, AND a real need for infrastructure and alt-e. So puttiing this all together to me means ONE THING.

          The GAME IS AFOOT. (GAME-ON!!!)

          You may all have a different view and take a different approach. Me? I'm throwing down and pillling into all of the plays that I wanted to make, but have not yet done so.

          (Not all at one time of course) But my words of wisdom would be

          "Accumulate, CAUTIOUSLY " but keep a big pile of ready cash until you see clear signs. (As an aside, when I was screaming at people to buy gold in 2004, no one would listen and it did basically nothing, till last quarter of 2005. It was worth the wait and the ridicule, trust me.)

          And remember, successfully riding one bubble can make you comfortable, two in a row can make you well-off. Three and you are done.

          (Didn't play Tech, +100% in housing, +300ish% PM still holding that so not really fair but just to illustrate, ?? ALT-E) remember thats not cummulative, that's percentage gain during each, cummulative is about +600% in 5 years, not bad and I DON'T TRADE except to get in and get out. I'm keepin my PMs though, I don't think they are close to done yet (BTW you can't buy much of any physical now, near zero supply in Ag/Au eagles, maples, 100oz CMX silver bars) , my free capital (about 30% cash) is going for new next bubble.

          I'm though step #2, I'll let you all know how #3 turns out.

          V/R

          JT

          Not investment advice, just letting you know what I've done and am going to do. You MAY poke fun from the sidelines, (I encourage you to do so) that's why I'm here.
          Last edited by jtabeb; 10-02-08, 01:26 PM.

          Comment


          • #6
            Re: The Last Bubble

            Getting rid of toxic paper via a few bailout bills and placing it in take the loss slowly government vault will clean balance sheets. Capital re-inflate processing companies can then ramp up and get the next bubble on its saving the economy way.
            Going to get exciting in a few weeks when we know who will be our next policy bill producer. We know the theme, getting it right investing in the details over the next 6-12 months will be the fun part.

            Comment


            • #7
              Re: The Last Bubble

              Originally posted by jtabeb View Post
              Key question is how long? or how fast to get there?

              In his harpers article, EJ hints at one last big push to get this new bubble rolling before the collapse of the previous ones makes it not possible.

              I'm wondering if he still thinks that is possible.

              I personally think so, the more things change, the more they stay the same. (There is ALWAYS going to be a bubble in a FIAT capitalist system SOMEWHERE.) The question is can you get on the train before it takes off and get off before it crashes)

              The argment seems to be if all the trains have crashed, what are you going to catch a ride on?

              I think that people should remeber ONE THING.

              It takes an extrodiary amount of credit to finance the "next bubble".

              The source of that credit is usually in response to a "crisis" like LTCM, Asian currency crisis, Latin amercian debt crisis, etc, etc. So, from where I'm sitting, we've got our crisis, and soon we will have our huge influx of new credit in response to that crisis, AND a real need for infrastructure and alt-e. So puttiing this all together to me means ONE THING.

              The GAME IS AFOOT. (GAME-ON!!!)

              You may all have a different view and take a different approach. Me? I'm throwing down and pillling into all of the plays that I wanted to make, but have not yet done so.

              (Not all at one time of course) But my words of wisdom would be

              "Accumulate, CAUTIOUSLY " but keep a big pile of ready cash until you see clear signs. (As an aside, when I was screaming at people to buy gold in 2004, no one would listen and it did basically nothing, till last quarter of 2005. It was worth the wait and the ridicule, trust me.)

              And remember, successfully riding one bubble can make you comfortable, two in a row can make you well-off. Three and you are done.

              (Didn't play Tech, +100% in housing, +300ish% PM still holding that so not really fair but just to illustrate, ?? ALT-E) remember thats not cummulative, that's percentage gain during each, cummulative is about +600% in 5 years, not bad and I DON'T TRADE except to get in and get out. I'm keepin my PMs though, I don't think they are close to done yet (BTW you can't buy much of any physical now, near zero supply in Ag/Au eagles, maples, 100oz CMX silver bars) , my free capital (about 30% cash) is going for new next bubble.

              I'm though step #2, I'll let you all know how #3 turns out.

              V/R

              JT

              Not investment advice, just letting you know what I've done and am going to do. You MAY poke fun from the sidelines, (I encourage you to do so) that's why I'm here.
              Who would poke fun of those returns? For all of our back and forth on this site about policy and economic direction, the bottom line for all of us is capital preservation/expansion. A road map through the world's largest casino is always appreciated. Thanks and good luck.

              Comment


              • #8
                Re: The Last Bubble

                Originally posted by ax View Post
                Who would poke fun of those returns? For all of our back and forth on this site about policy and economic direction, the bottom line for all of us is capital preservation/expansion. A road map through the world's largest casino is always appreciated. Thanks and good luck.
                Ash, I'm jealous of you. Here I am still playing games in the military and you are living and Oregon and get to tickle the wife and beat the kid every night. (The wife and I are both from Eugene, my son is an Okie and my two daughters are Jersey Girls). Wish you all the best, my friend.

                Comment


                • #9
                  Re: The Last Bubble

                  Originally posted by bill View Post
                  Getting rid of toxic paper via a few bailout bills and placing it in take the loss slowly government vault will clean balance sheets. Capital re-inflate processing companies can then ramp up and get the next bubble on its saving the economy way.
                  Going to get exciting in a few weeks when we know who will be our next policy bill producer. We know the theme, getting it right investing in the details over the next 6-12 months will be the fun part.
                  We need more of bill on the Itulip forums!

                  Senator Clinton on the floor of the Senate yesterday:

                  In fact, we will be stimulating the economy for Main Street while we pass this rescue package for our credit markets. I think that is the right combination. But we need to do more. Instead of toxic securities that nobody can understand, are so complex and lack all transparency and accountability, banks should be investing in clean energy facilities in Buffalo or new auto manufacturing plants in Detroit to build more fuel-efficient cars.

                  We should be repairing our bridges, our roads, our tunnels. We should be investing in high-speed rail and making sure Amtrak is not a second-class railroad but competes with the best anywhere in the world.

                  Congressional Record

                  Comment


                  • #10
                    Re: The Last Bubble

                    It's impossible to prevent bubbles just as much as it's impossible to prevent a stock to become overvalued. They'll always exist.

                    Comment


                    • #11
                      Re: The Last Bubble

                      Originally posted by ax View Post
                      Who would poke fun of those returns? For all of our back and forth on this site about policy and economic direction, the bottom line for all of us is capital preservation/expansion. A road map through the world's largest casino is always appreciated. Thanks and good luck.
                      until the harper's article bubbles were a mystery, or dopey accidents of madness of crowds. now we know how they happen. we are watching one form before our eyes. the deregulation. the tax subsidies. somewhere bankers are cooking up new financial products to fund it. the media are lining up to sell it.

                      it's awesome.

                      Comment


                      • #12
                        Re: The Last Bubble

                        Originally posted by rj1 View Post
                        It's impossible to prevent bubbles just as much as it's impossible to prevent a stock to become overvalued. They'll always exist.
                        False, notice I said in a FIAT capitalist system (and with out 100% reserve requirement) in that case yes.

                        Comment


                        • #13
                          Re: The Last Bubble

                          Originally posted by jtabeb View Post
                          False, notice I said in a FIAT capitalist system (and with out 100% reserve requirement) in that case yes.
                          how come no bubbles in france since john law?

                          how come no housing bubble in france but one in spain in the 2000s?

                          the riddle is solved: government and law.

                          Comment


                          • #14
                            Re: The Last Bubble

                            Originally posted by metalman View Post

                            the riddle is solved: government and law.
                            I stand corrected

                            (should have said in the US FIAT CAPITALIST DEREGULATED NON 100% RESERVE REQUIREMENT CREDIT BASED ECONOMY), better?

                            Comment


                            • #15
                              Re: The Last Bubble

                              Originally posted by metalman View Post
                              until the harper's article bubbles were a mystery, or dopey accidents of madness of crowds. now we know how they happen. we are watching one form before our eyes. the deregulation. the tax subsidies. somewhere bankers are cooking up new financial products to fund it. the media are lining up to sell it.

                              it's awesome.
                              I agree, it's phenominal seeing it happen when you know what they're up to. However, it seems for some reason EJ is not sure that a new bubble is even possible anymore.

                              Comment

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