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Author Topic: The need for bubbles  (Read 1088 times)
xxjs
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September 15, 2013, 07:10:33 PM
 #1

Somone hinted on this (old) article from The Onion

http://www.theonion.com/articles/recessionplagued-nation-demands-new-bubble-to-inve,2486/?ref=auto

"WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest."

It seems that the satirical The Onion hit the nail with this one. I think this is the policy the central bank is following.

According to this article by Krugman in New York Times, they should blow up a new bubble:

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html



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September 16, 2013, 03:51:35 AM
 #2

This is very true, and each bubble must be magnitudes higher than the previous bubble to be able to offset the negative effect from the burst of the previous bubble

IT consumption was about $10K per household, and then housing consumption raised the bar to $100K per household, now they must find another consumption which is 1 million dollars per household. It means, each household will get loan from banks and purchase something worth 1 million dollars, what will that be?

Unlike IT and housing, the bond bubble does not create corresponding consumption from each household, and how the income of each household is getting less and less

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September 16, 2013, 04:02:08 AM
 #3

This is very true, and each bubble must be magnitudes higher than the previous bubble to be able to offset the negative effect from the burst of the previous bubble

IT consumption was about $10K per household, and then housing consumption raised the bar to $100K per household, now they must find another consumption which is 1 million dollars per household. It means, each household will get loan from banks and purchase something worth 1 million dollars, what will that be?

Unlike IT and housing, the bond bubble does not create corresponding consumption from each household, and how the income of each household is getting less and less
...
business loan bubble?
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September 16, 2013, 06:45:23 AM
 #4

This is very true, and each bubble must be magnitudes higher than the previous bubble to be able to offset the negative effect from the burst of the previous bubble

IT consumption was about $10K per household, and then housing consumption raised the bar to $100K per household, now they must find another consumption which is 1 million dollars per household. It means, each household will get loan from banks and purchase something worth 1 million dollars, what will that be?

Unlike IT and housing, the bond bubble does not create corresponding consumption from each household, and how the income of each household is getting less and less

The next bubble will be robots that will do our jobs for us.  If you don't get one, you will wind up without income.  When humans are replaced by machines, you had better own some machines.  Your labor is no longer valuable enough.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
xxjs
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September 16, 2013, 08:56:18 AM
 #5

Someone has suggested education tuition and student loans, but I just cant see how an eventual burst will play out. Drop in university fees? Not likely.
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September 16, 2013, 10:41:00 AM
 #6

Everyone could get 1 million dollars loan from bank and purchase bitcoin and then they can get a guaranteed income during rest of their life. Unlike IT and housing, the spending on bitcoin is an investment like pension fond, but the return is much higher than pension fond

Since there will not be excessive supply like IT and housing, the bubble won't burst, it will just grow and grow and grow


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September 16, 2013, 10:44:01 AM
 #7

Someone has suggested education tuition and student loans, but I just cant see how an eventual burst will play out. Drop in university fees? Not likely.

Those loans do not generate any return, and more and more graduates could not find work to payback their loan, it will end up with a large scale default

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September 17, 2013, 12:51:54 AM
 #8

Everyone could get 1 million dollars loan from bank and purchase bitcoin and then they can get a guaranteed income during rest of their life. Unlike IT and housing, the spending on bitcoin is an investment like pension fond, but the return is much higher than pension fond

Since there will not be excessive supply like IT and housing, the bubble won't burst, it will just grow and grow and grow



I am pretty sure there is a hole in that theory, but I am sure someone else can explain it better than I can.
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September 17, 2013, 02:36:49 AM
 #9

Everyone could get 1 million dollars loan from bank and purchase bitcoin and then they can get a guaranteed income during rest of their life. Unlike IT and housing, the spending on bitcoin is an investment like pension fond, but the return is much higher than pension fond

Since there will not be excessive supply like IT and housing, the bubble won't burst, it will just grow and grow and grow



I am pretty sure there is a hole in that theory, but I am sure someone else can explain it better than I can.

Don't be so sure when it comes to something with limited supply  Wink

Historically, all the asset bubble bursted because of two reasons:

1. The supply of the asset will increase after the asset appreciated quickly (added supply of IT products and house for example)

2. At the same time the central bank tightened the money supply to prevent higher and higher inflation (otherwise the trust of fiat money will collapse)

But for bitcoin these 2 conditions won't met. The supply of coins will only decrease every 4 years, and if central bank tightened the money supply, all the other goods/services' price will drop much quicker than bitcoin (due to unlimited supply). So, before the central bank successfully spiked the bitcoin bubble, they would have already destroied the whole economy

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September 17, 2013, 02:44:14 AM
 #10

Everyone could get 1 million dollars loan from bank and purchase bitcoin and then they can get a guaranteed income during rest of their life. Unlike IT and housing, the spending on bitcoin is an investment like pension fond, but the return is much higher than pension fond

Since there will not be excessive supply like IT and housing, the bubble won't burst, it will just grow and grow and grow



I am pretty sure there is a hole in that theory, but I am sure someone else can explain it better than I can.

Don't be so sure when it comes to something with limited supply  Wink

Historically, all the asset bubble bursted because of two reasons:

1. The supply of the asset will increase after the asset appreciated quickly (added supply of IT products and house for example)

2. At the same time the central bank tightened the money supply to prevent higher and higher inflation (otherwise the trust of fiat money will collapse)

But for bitcoin these 2 conditions won't met. The supply of coins will only decrease every 4 years, and if central bank tightened the money supply, all the other goods/services' price will drop much quicker than bitcoin (due to unlimited supply). So, before the central bank successfully spiked the bitcoin bubble, they would have already destroied the whole economy

Maybe I am misunderstanding you, but I am pretty sure "other goods/services" are not unlimited in supply.
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September 17, 2013, 03:29:12 AM
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Maybe I am misunderstanding you, but I am pretty sure "other goods/services" are not unlimited in supply.

Maybe they have some limitation, but usually they are flexible, a higher price will always cause an increase in supply, and added supply will drive the price down later

xxjs
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September 17, 2013, 08:45:17 AM
 #12

Everyone could get 1 million dollars loan from bank and purchase bitcoin and then they can get a guaranteed income during rest of their life. Unlike IT and housing, the spending on bitcoin is an investment like pension fond, but the return is much higher than pension fond

Since there will not be excessive supply like IT and housing, the bubble won't burst, it will just grow and grow and grow



I am pretty sure there is a hole in that theory, but I am sure someone else can explain it better than I can.

The error in this theory is the word "everyone". If it works at all, it can only work for some early adopters. Getting a 1 million dollar loan from a bank is also not easy unless you already are welthy.
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September 17, 2013, 12:41:30 PM
 #13

Everyone could get 1 million dollars loan from bank and purchase bitcoin and then they can get a guaranteed income during rest of their life. Unlike IT and housing, the spending on bitcoin is an investment like pension fond, but the return is much higher than pension fond

Since there will not be excessive supply like IT and housing, the bubble won't burst, it will just grow and grow and grow



I am pretty sure there is a hole in that theory, but I am sure someone else can explain it better than I can.

The error in this theory is the word "everyone". If it works at all, it can only work for some early adopters. Getting a 1 million dollar loan from a bank is also not easy unless you already are welthy.

Since the appreciation speed of bitcoin is much higher than houses, it is possible that you will get one million dollars loan from banks to purchase bitcoin, and bank hold those coins as mortgage. For banks this is interest income, why not?

I just saw a bitcoin investment fond promised their investors a 20% return each year on their fiat money investment, since bitcoin's price rise quickly, such kind of return is almost guaranteed. And if you have some thing can generate guaranteed 20% return each year, most of the banks will provide you a loan

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September 19, 2013, 12:51:50 AM
 #14

Everyone could get 1 million dollars loan from bank and purchase bitcoin and then they can get a guaranteed income during rest of their life. Unlike IT and housing, the spending on bitcoin is an investment like pension fond, but the return is much higher than pension fond

Since there will not be excessive supply like IT and housing, the bubble won't burst, it will just grow and grow and grow



I am pretty sure there is a hole in that theory, but I am sure someone else can explain it better than I can.

The error in this theory is the word "everyone". If it works at all, it can only work for some early adopters. Getting a 1 million dollar loan from a bank is also not easy unless you already are welthy.

Since the appreciation speed of bitcoin is much higher than houses, it is possible that you will get one million dollars loan from banks to purchase bitcoin, and bank hold those coins as mortgage. For banks this is interest income, why not?

I just saw a bitcoin investment fond promised their investors a 20% return each year on their fiat money investment, since bitcoin's price rise quickly, such kind of return is almost guaranteed. And if you have some thing can generate guaranteed 20% return each year, most of the banks will provide you a loan

Pirateat40? Is that you?
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September 19, 2013, 12:58:58 AM
 #15

Everyone could get 1 million dollars loan from bank and purchase bitcoin and then they can get a guaranteed income during rest of their life. Unlike IT and housing, the spending on bitcoin is an investment like pension fond, but the return is much higher than pension fond

Since there will not be excessive supply like IT and housing, the bubble won't burst, it will just grow and grow and grow



I am pretty sure there is a hole in that theory, but I am sure someone else can explain it better than I can.

Don't be so sure when it comes to something with limited supply  Wink

Historically, all the asset bubble bursted because of two reasons:

1. The supply of the asset will increase after the asset appreciated quickly (added supply of IT products and house for example)

2. At the same time the central bank tightened the money supply to prevent higher and higher inflation (otherwise the trust of fiat money will collapse)

But for bitcoin these 2 conditions won't met. The supply of coins will only decrease every 4 years, and if central bank tightened the money supply, all the other goods/services' price will drop much quicker than bitcoin (due to unlimited supply). So, before the central bank successfully spiked the bitcoin bubble, they would have already destroied the whole economy


Ya the hole in this one in the side of Johnyj's head.. Doesnt realize what makes something valuable.  If you think bitcoin is a retirement plan you deserve to eat dog food in your old age.


scarce doesnt = valuable.
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September 19, 2013, 01:40:19 AM
 #16

scarce doesnt = valuable.

Aboundant = no value (fiat money)

People are living with a twisted understanding of money, it takes some time to wake up   Wink

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