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BubbleNomics

BUBBLENOMICS

BubbleNomics, it’s new, it’s exciting, it’s a failure?

The world has really changed. It has been a year since the COVID-19 Pandemic has infected the globe. Everything has been touched and everyone has been impacted. There is a distinct change in our daily family life, our jobs, and our communities. As of March 2021, globally there has been 115 million cases and 2.5 million deaths. While the loss of people is staggering, the most overarching impact has been on the economies of the world.

These are some of the different types of economic models used: Socialist, Capitalistic, Planned, Mixed, Free-Enterprise, Freak, Command, Market, Traditional, Normative, Social, Quantitative Easing, etc.

BubbleNomics has taken hold as the newest economic model. This is a whole new approach. It is different than anything done in economic history. Simply put, it is based on the continuing mass printing of money and the issuing of digital money to keep the world afloat. This is being done in every country everywhere with the United States leading through example.

Government support programs have been unprecedented. In the United States, unemployment programs pumped over $500 billion into Americans’ pockets. The first $1,200 stimulus checks to most American households added another $276 billion as part of the first $2 trillion stimulus package. In total, the US government stimulus packages totaled over $6.5 trillion for 2020. On top of that is another $1.9 trillion stimulus package just passed by Congress to start 2021. All total, it means $8.5 trillion with no end in sight.

The pandemic has brought about a kind of selective destruction of business. This is keenly exemplified in the rise of remote and digital services over traditional brick and mortar business. The travel and live entertainment industries have been decimated. There has been a huge swing to remotely working from home and buying everything online with home delivery. This has been great for online business and destructive to physical merchants. This shift impacts many long-time safe haven businesses such as shopping malls, office buildings, and live arenas, which based on their real-estate values, have been safe bets in the past. Now, there are too many restrictions for people to go shopping, meet in offices and attend events.

The warning signs of BubbleNomics mania are everywhere. P/E ratios are high and climbing. Bitcoin rose 300% in the last few months. There is a deluge of SPAC IPOs. Real estate prices are rapidly rising outside of major cities. There are retail-driven short squeezes, mini-bubbles and increased volatility which are symptoms of BubbleNomics. Even with millions unemployed or underemployed, it is not surprising that the bubble exists and grows. Many low-end service workers have lost their jobs. The higher-paying professional jobs were unaffected and even prospered. Low-skilled jobs such as warehousing, grocery stores, and delivery services have boomed. This has developed into a bubble that was not expected.

Add into this the fact that discretionary spending fell dramatically. People did not go on vacation, to restaurants, movie theaters, sports venues, concerts, etc. Instead, there was a bit more spent on durable goods, especially with people stuck at home.

I expect that if COVID is behind us, people will party to end all parties. People are going to travel, consume and spend like there is no tomorrow.

It seems clear that we have a way to go before this bubble pops. Different than the 2000 .com bubble, the 1990’s Asia real estate bubble, and the 2007 Great Recession bubble is BubbleNomics 2020. The trouble is brewing from all the government and corporate debt handed in from COVID. Most global governments are suffering from deteriorating fiscal positions due to unsustainable growth in deficits and debt. Combine this with a severe loss of tax revenue. I do not see the bubble popping in the next year or so. However, the day of reckoning is coming. Based on an ever-expanding money supply combined with unsustainable growth in debt and deficits. Will bring the day of reckoning to almost every major country in the world.

We grow out of it. This is not unprecedented. During WW1 and WW2 government debt ballooned. After both wars, there was heavy economic growth coming from strong consumer demand and investment. It may happen again. After the last decades of productivity stagnation, we may be on the verge of a productivity boom. COVID has led to a massive increase in adoption of digital banking, cryptocurrencies, automation, online education, e-commerce, and working remotely. The speed of vaccine development and telemedicine may mean a lot more innovation is opening in healthcare.

I cannot say when or why the bubble will burst from BubbleNomics. There are a few protections that you can take. Owning bonds is risky as the yields are insanely low, and the default risk high. You are at threat for inflation. It is the most dangerous period of time for your capital but also your individual freedom. A shortage of capital is coming. Many of the traditional investments will fail. BubbleNomics has brought a whole new way of approaching spending, saving, and investing. Think outside of the norms! Cashflow is king, not cash!

The euro crisis showed that Europe will do anything for the Euro, and it will be the same now. The US can almost endlessly sustain deficits as long as the dollar remains the global reserve currency. The day of reckoning will come - but not soon. The US debt will keep ballooning.

During a period of dramatic transformation, there are people who recognize these changes. Change can potentially bring disaster; it also presents opportunity. To many people, change is negative. To escape negativity, they tend to support leaders who promise to make these problems disappear. There will be the few that understand the entering of a period of great opportunity. And the future will be primarily theirs to command.

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 17 March, 2021, 11:551 like 1 like

Bubble or not, I won't comment, but a fact that's missed by a lot of people is that bubbles don’t burst overnight. 

Before bursting in the steady state, bubbles go through a transient phase, when they grow and lot of people make a lot of money. Quite often, the transient phase can last years if not a decade.

For example, the subprime mortgage bubble began in the early 2000s and lasted four to five years before it burst and caused the Great Financial Crisis in 2007-8.

While all bubbles burst at steady state, they end badly only for the people who’re caught holding the parcel when the music stops at the end. For many others who make money by passing the parcel around while the music kept playing for years, bubbles prove to be lucrative.

That’s why, even though so many bubbles have burst in the past, that has never stopped new bubbles from forming in the future.

Pundits have been predicting that the startup valuation bubble will burst next year for the last 10 years. But it hasn’t burst yet. If anything, it has only grown.

(Above passage is reproduced with permission from my company blog post titled How Do Founders Become Rich When Their Companies Make Loss).

Chris Principe

Chris Principe

CEO

APB, Inc.

Member since

15 Nov 2008

Location

Miami

Blog posts

36

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