'..Many voice serious concerns in private, with only a few willing to publicly broach the subject .. But we don’t have to resort to history books to appreciate the critical importance of Bubble analysis. Japan still suffers the consequences of its eighties Bubble period more than three decades later. The 1995/98 collapses of the Mexican, Asian Tiger and Russian Bubbles were catastrophic. Then there was the so-called “dot.com” Bubble. More recent yet, the “great financial crisis” was the fateful consequence of bursting Bubbles. The commonly labeled “housing Bubble” was more accurately a phenomenal mortgage finance Bubble. That historic Bubble encompassed massive expansions of mortgage Credit, GSE balance sheets, MBS, derivatives, hedge fund leverage, and a plethora of “shadow bank” mortgage lenders, not to mention traditional bank lending.
..I didn’t hear the word “Bubble” in two days of Powell’s back and forth testimony with members of Congress. “Bubble” was not uttered once during Powell’s May 1st or March 20th press conferences.
It’s arguably today’s most important and pressing issue for the markets and economy, yet the subject of Bubbles has curiously reached the point of complete radio silence..''Aged. Unhealthy and deeply unsound. Worryingly unstable. Many voice serious concerns in private, with only a few willing to publicly broach the subject. But it’s way past time to have an open and candid debate on such critical subject matter and how to move forward. And I’m not referring to Nancy Pelosi and Barack Obama venturing to the West Wing for a heart-to-heart with President Biden.
Bubbles have been momentous market and economic phenomena for centuries. The Dutch “tulip-mania” (1634-1637) is often cited as the first well-documented Bubble. Inflating after John Law’s introduction of paper money to France, the Mississippi Bubble (1719-1720) was a spectacular Credit, speculation and economic Bubble fiasco. Inflating during the same period in the UK, the South Sea Bubble had similar disastrous consequences. There were great U.S. (1866-1873) and UK railway Bubbles and busts.
“Roaring Twenties” Credit and speculative Bubbles laid the groundwork for the 1929 crash and Great Depression. Castigating the “Bubble poppers” (who at the time recognized the unfolding peril), the revisionist Ben Bernanke shifted blame for the depression to the Fed’s negligent failure to print sufficient money.
But we don’t have to resort to history books to appreciate the critical importance of Bubble analysis. Japan still suffers the consequences of its eighties Bubble period more than three decades later. The 1995/98 collapses of the Mexican, Asian Tiger and Russian Bubbles were catastrophic. Then there was the so-called “dot.com” Bubble. More recent yet, the “great financial crisis” was the fateful consequence of bursting Bubbles. The commonly labeled “housing Bubble” was more accurately a phenomenal mortgage finance Bubble. That historic Bubble encompassed massive expansions of mortgage Credit, GSE balance sheets, MBS, derivatives, hedge fund leverage, and a plethora of “shadow bank” mortgage lenders, not to mention traditional bank lending.
It was as if obvious lessons from that terrible experience were all simply washed away in a sea of reflationary monetary policymaking. I didn’t hear the word “Bubble” in two days of Powell’s back and forth testimony with members of Congress. “Bubble” was not uttered once during Powell’s May 1st or March 20th press conferences.
It’s arguably today’s most important and pressing issue for the markets and economy, yet the subject of Bubbles has curiously reached the point of complete radio silence. As much as I’ve been a longtime admirer, I find myself increasingly annoyed with Mohamed El-Erian..
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While the economic community in August 2008 had no idea what was coming, they at least recognized that the subprime crisis had Bubble ramifications..
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Fourteen years later, these three issues are more critical than ever. The evolution of the Fed’s asymmetrical approach (dating back to Greenspan) lurched to previously unimaginable extremes with the Fed’s $5 TN pandemic monetary inflation. “Whatever it takes” regressed to completely open-ended Treasury and MBS (and ETF) purchases, creating a unique ironclad liquidity backstop to be exploited by the leveraged speculating community. Little wonder Treasury “basis trade” leverage is said to now exceed $1 TN.
The current Bubble dwarfs mortgage finance Bubble excess .. The Fed (and other central banks) adopted a doctrine of distancing monetary policy from Bubble containment, choosing instead to apply “macro-prudential” measures to thwart asset inflation and speculative Bubbles. This cop-out approach was destined for failure, of which the March 2023 banking crises offered an early “progress” report.
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As I write on Friday evening, there are still a million customers (residential and business) still without power in Southeast Texas. Houston utility Centerpoint has warned that “roughly 500,000” will be out of power into next week. A frightening number suffered this week through a heat index exceeding 100 degrees without electricity. Houstonians have every reason to be outraged.
It’s easy to pin blame largely on Centerpoint. But Houston’s crisis this week is a microcosm of a greater calamity in planning, prioritization, and resource allocation. Houston was hit by Hurricane Ike in 2008 and the devastating Hurricane Harvey in 2017. This past May, the city was slammed by a powerful derecho. That the fourth largest city in the U.S. was brought to its knees this week by a Cat 1 hurricane should be a wake-up call.'
- Doug Noland,
Houston, We Have a Bubble Problem, July 12, 2024
Context'..to defeat all those ideological forces that are operating in favor of credit expansion.' - Ludwig von Mises(Return to the '70s) - ECB’s Nagel Says Structural Forces Could Keep Inflation Higher'..inflation .. deflation..' - '..the role time plays..' - '..social interaction..'(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'