Bubbleology

Sunday, May 18, 2008 | 01:00 PM

Friday's WSJ front page article, Bernanke's Bubble Laboratory, is must reading:

"First came the tech-stock bubble. Then there were bubbles in housing and credit. Chinese stocks took off like a rocket. Now, as prices soar on every material from oil to corn, some suggest there's a bubble in commodities.

But how and why do bubbles form? Economists traditionally haven't offered much insight. From World War II till the mid-1990s, there weren't many U.S. investing manias for them to look at. The study of bubbles was left to economic historians sifting through musty records of 17th-century Dutch tulip-bulb prices and the like . . .

Now, the study of financial bubbles is hot . . . Among their conclusions:

Bubbles emerge at times when investors profoundly disagree about the significance of a big economic development, such as the birth of the Internet. Because it's so much harder to bet on prices going down than up, the bullish investors dominate.

Once they get going, financial bubbles are marked by huge increases in trading, making them easier to identify.

Manias can persist even though many smart people suspect a bubble, because no one of them has the firepower to successfully attack it. Only when skeptical investors act simultaneously -- a moment impossible to predict -- does the bubble pop."

Its now at the free section of WSJ.com.


>


Source:
Bernanke's Bubble Laboratory
Princeton Protégés of Fed Chief Study the Economics of Manias
JUSTIN LAHART
WSJ, May 16, 2008; Page A1
http://online.wsj.com/article/SB121089412378097011.html

Sunday, May 18, 2008 | 01:00 PM | Permalink | Comments (19) | TrackBack (0)
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Through out history, bubbles are driven by excess liquidity. As a country we have total debt (personal, corporate and governmental) that is growing exponentially and is now over 300% of GDP, a record high. THis debt (I define it as excessive debt) will never be repaid. The country has two options, debt revulsion aka depression, or inflation. Bernanke is strongly on the side of inflating away the debt, just ask him. Everything the government is doing is working to keep the debt bubble growing. When you have a government that says debts don't matter (the Federal debt has close to doubled in the last 8 years), what do you think will happen?

Bubbles look to me to be the only way the economy can function. Ag is in a bubble now along with energy and other commodities. Bubbles are coming faster and faster, until the big POP, and the music stops.

The real question to me is not will there be more bubbles, but how to survive the coming
Big Bang or POP or implosion.

My investments go along these lines:
-Energy
_Foreign stock and bonds
-Farm land and crops
-Commodities like gold, platinum and silver
-A few US stocks like BRK, a few bonds like TIPS and E bonds

Here's looking at the coming bubbles.

Posted by: farmera | May 18, 2008 1:25:43 PM

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