How do we know when irrational exuberance has unduly escalated asset values?
Bubbles are best identified by credit excesses, not valuation excesses. And there's no bigger credit excess than in China.
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
We are in a big, fat, ugly bubble. And we better be awfully careful.
The Internet bubble circa 2000 is the most extreme in modern capitalism. In the 1930s, we had the worst depression in 600 years. Today is almost as extreme in the opposite way.
Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.
Credit expansion and money printing hasn't filtered much to ordinary people. It's boosted asset markets, real estate and stocks. So well-to-do-people have done very well.
Every bubble consists of a trend that can be observed in the real world and a misconception relating to that trend. The two elements interact with each other in a reflexive manner.
The fallacy of monetary policy in the U.S. is to believe this money will go to the man on the street. It won't. It goes to the Mayfair economy of the well-to-do people and boosts asset prices of Warhols... Very happy. Very good for the Fed. Congratulations, Mr. Bernanke.
I'm not sure most of the people that get caught up in the middle of a bubble can be described as irrational. It seems pretty rational to buy a house and flip it in the next few weeks at a profit when that's been happening for along time.
The bubble, as investing phenomenon, has been well studied ever since the 17th-century tulip bulb frenzy. Its counterpart in bear markets is not well understood.
Real short- and long-term rates were relatively high in the late-1990s, so financial excess can also arise without a low-rate environment.
Reasonable men are not reasonable when you're in the bubbles which have characterized capitalism since the beginning of time.
Asset bubbles have happened even without not-so-easy money. And, in a depressed economy, where alternative uses of money are not great, people are going to bid up the prices of profitable corporations and stuff like that.
I don't even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don't know what a credit bubble means. I don't even know what a bubble means. These words have become popular. I don't think they have any meaning.
The big money in booms is always made first by the public - on paper. And it remains on paper.
If you go into what I call a bubble boom, every bubble bursts.
