How Are Bubbles Formed in This Day and Age?
Bubble mania is nothing new. Bubbles in assets have existed for thousands of years or as long as the markets have existed in one form or another. They have always worked the same way and today is no different other than markets get a lot of help to form the bubbles.
What exactly do I mean by that?
Let's look at the Canadian housing bubble to experience a vast bubble that has in effect stayed blown long after it should have. In fact real estate around the world could be used as the best example.
Back from the late 1980's and onward the Japanese central bank proved to other central banks that you indeed could print money indefinitely to stave off deflationary forces and to blow various bubbles in assets that needed a "push". This set the stage for what we have seen in the financial markets for the past ten years. The major difference back in the late 80's was it was essentially only the Japanese central bank pushing its own asset prices around. Now because all governments around the world are in debt up to their ying yangs all the central banks around the world work in a symbiotic effort to be the buyers and sellers of various asset classes.
In other words they are the major buyers and sellers of all assets thereby controlling what and where in rising or falling prices.
Oh sure there will be the pundits that state that this is not how a sound monetary system is supposed to work. Of course they are right but I have some news for you.
This bubble blowing bonanza is here to stay.
Let's look at basic economics 101 to see how this works.
To operate any market what do you need?
Right. A buyer. A seller and the product. That is it.
Price rises when there is not enough product in relation to the buyers and price falls where there is too much product for the number of buyers in the market.
However what if you were able to control the number of buyers and sellers in the market at any particular time?
Would that make a difference in controlling price movement?
Of course it would. It creates fair competition in the market place at all times so that the price heads in the desired direction.
If you want to create inflationary pressure well then you just buy up all the stock or reserves in the market keeping the market hot. Then you give money to all your buddies to help you build the bubble to where you want it. Hence the Fed giving all the banks money and their hedge fund buddies money to buy up all the excess houses and then rent them out. This in turn skews the market to one side even if it is not based upon transparent supply versus demand.
These large entities work hand in hand with the Fed to add to their portfolio's and create shortages in the market for the "real" buyers. In essence inflation is created.
It is important for inflation to be created in stocks and in real estate because this is what most people rely on for retirement income and of course for extra money. Ten thousand boomers reach retirement age daily now. Of course not all of them can retire or even want to retire but never the less they are of age. Social security is already accounted for in money printing which is how it will all be paid. The velocity of this money is slow because it is just the necessities to live on.
This is how and why bubbles occur only in certain assets and not others.
Will it continue to work out in the long run?
There is no reason to think that it won't as long as you control the buyers and sellers because you are essentially both parties in the transaction. Cheers!
What exactly do I mean by that?
Let's look at the Canadian housing bubble to experience a vast bubble that has in effect stayed blown long after it should have. In fact real estate around the world could be used as the best example.
Back from the late 1980's and onward the Japanese central bank proved to other central banks that you indeed could print money indefinitely to stave off deflationary forces and to blow various bubbles in assets that needed a "push". This set the stage for what we have seen in the financial markets for the past ten years. The major difference back in the late 80's was it was essentially only the Japanese central bank pushing its own asset prices around. Now because all governments around the world are in debt up to their ying yangs all the central banks around the world work in a symbiotic effort to be the buyers and sellers of various asset classes.
In other words they are the major buyers and sellers of all assets thereby controlling what and where in rising or falling prices.
Oh sure there will be the pundits that state that this is not how a sound monetary system is supposed to work. Of course they are right but I have some news for you.
This bubble blowing bonanza is here to stay.
Let's look at basic economics 101 to see how this works.
To operate any market what do you need?
Right. A buyer. A seller and the product. That is it.
Price rises when there is not enough product in relation to the buyers and price falls where there is too much product for the number of buyers in the market.
However what if you were able to control the number of buyers and sellers in the market at any particular time?
Would that make a difference in controlling price movement?
Of course it would. It creates fair competition in the market place at all times so that the price heads in the desired direction.
If you want to create inflationary pressure well then you just buy up all the stock or reserves in the market keeping the market hot. Then you give money to all your buddies to help you build the bubble to where you want it. Hence the Fed giving all the banks money and their hedge fund buddies money to buy up all the excess houses and then rent them out. This in turn skews the market to one side even if it is not based upon transparent supply versus demand.
These large entities work hand in hand with the Fed to add to their portfolio's and create shortages in the market for the "real" buyers. In essence inflation is created.
It is important for inflation to be created in stocks and in real estate because this is what most people rely on for retirement income and of course for extra money. Ten thousand boomers reach retirement age daily now. Of course not all of them can retire or even want to retire but never the less they are of age. Social security is already accounted for in money printing which is how it will all be paid. The velocity of this money is slow because it is just the necessities to live on.
This is how and why bubbles occur only in certain assets and not others.
Will it continue to work out in the long run?
There is no reason to think that it won't as long as you control the buyers and sellers because you are essentially both parties in the transaction. Cheers!
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