{"id":4513,"date":"2010-11-29T13:14:51","date_gmt":"2010-11-29T17:14:51","guid":{"rendered":"http:\/\/1boringoldman.com\/?p=4513"},"modified":"2010-11-29T13:36:10","modified_gmt":"2010-11-29T17:36:10","slug":"the-next-political-bubble-american-exceptionalism","status":"publish","type":"post","link":"https:\/\/1boringoldman.com\/index.php\/2010\/11\/29\/the-next-political-bubble-american-exceptionalism\/","title":{"rendered":"the next political “bubble?” – American Exceptionalism<\/font>…"},"content":{"rendered":"\n

I had a thought over the holidays, kind of out of the blue. "We’re in a political bubble<\/font><\/strong>," said my mind, apropos of nothing. Maybe it’s intuitive what my thought meant, but I thought I’d flesh it out just to see where it goes. Obviously, the "bubble" part came from all the financial bubbles that have swept through our economy in the last several decades. <\/p>\n\n\n\n
Financial Bubbles<\/font><\/strong> <\/p>\n
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Before the fiscal crisis in 2008, I’d never heard this term [maybe "dotcom bubble," but it didn’t register]. Technically, it’s a term applied after-the-fact<\/em> to describe an asset market that becomes artificially over-valued, that then "bursts" with a crash. We’ve learned more about them in recent years than any of us ever wanted to know:<\/sup><\/div>\n
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• dotcom bubble<\/u>:<\/font><\/strong>
The Internet as we know it came into being with the introduction of the world wide web [html] in 1994. By 1998, Internet Companies sprung up everywhere and their market values took off like rockets – mostly traded on the  new NASDAQ exchange. They boosted the whole Stock Market to record heights. When that bubble burst, many companies had no assets and evaporated. The belief that sustained the dotcom bubble was that the Internet was the wave of the future. While that was no myth, most of those dotcoms were hangers-on<\/em>, doomed to failure from the start. Only a few survived [Google, EBay, Amazon, Adobe etc.] – companies with solid products or services.<\/sup><\/div>\n
• housing bubble<\/u>:<\/font><\/strong>
The massive inflation of home values began around the same time as the dotcom bubble, but took longer to peak. The delusion that it was a true rise in value developed more gradually, sustained by a prolonged period of "easy money" and encouragement by the government. While the story is much more complex, the net vector was the same – a falsely inflated asset that supported the entire market which then crashed and affected us all.<\/sup> <\/div>\n
• oil bubble<\/u>:<\/font><\/strong>
While less well defined, the oil bubble was also widely felt. Gas prices rose precipitously [over $4\/gallon]. We saw it as something else – the sign of dwindling reserves and began to plan for the unsure future by changing our driving habits, buying hybrids, going "green." All of those things were good ideas, but the prices were actually escalated by oil speculators who manipulated the markets. When it fell, the whole market joined it.<\/sup> <\/div>\n
• market bubble<\/u>:<\/font><\/strong>
In point of fact, the entire Stock Market has been a bubble of its own since 1995, tripling in value in the second half of the 1990’s and riding the crest of the other bubbles. Shiller showed that the market was overvalued in 1996 using the Price Earnings 10 year ratio<\/strong><\/u><\/a>, but his warning was ignored.<\/sup><\/div>\n
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Borrowing a term from an Alan Greenspan speech, Robert Shiller named his 2003 book about financial bubbles Irrational Exuberance<\/font><\/strong> – highlighting the almost delusional excitement that goes along with the Gold Rosh mentality that accompanies an inflating financial bubble. The thing I note about bubbles that sustains them is a seemingly rational argument that explains the rapid valuation<\/font><\/strong>:<\/div>\n