Is there any doubt that we are living in a bubble economy? At this moment in the United States we are simultaneously experiencing a stock market bubble, a government debt bubble, a corporate bond bubble, a bubble in San Francisco real estate, a farmland bubble, a derivatives bubble and a student loan debt bubble. And of course similar things could be said about most of the rest of the planet as well. In fact, the total amount of government debt around the world has risen by about 40 percent just since the last recession. But it is never sustainable when asset prices and debt levels increase much faster than the overall level of economic growth. History has shown us that all financial bubbles eventually burst. And when these current financial bubbles in America burst, the pain is going to be absolutely enormous.
You know that things are getting perilous when even the New York Times starts pointing out financial bubbles everywhere. The following is a short excerpt from a recent NotQuant article…
The New York Times points out that just about everything on Earth is expensive by historical standards. And then asks the seemingly obvious question: Does that make it a bubble?
Welcome to the Everything Boom — and, quite possibly, the Everything Bubble. Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals. The inverse of that is relatively low returns for investors.
“Quite possibly?” We’re not sure what definition of the word “bubble” they’re using. But in our book when the price of literally everything blasts upwards, obliterating the previous ceilings of historical benchmarks, it’s a pretty good indication that you’re in a bubble.
Of course when most people think of financial bubbles the very first thing they think of is the stock market. And without a doubt we are in a stock market bubble right now. The Dow has risen more than 10,000 points since the depths of the last recession. And it is nearly 3,000 points higher than it was at the peak of the last stock market bubble in 2007 when our economy was far stronger than it is now…
But of course these stock prices do not reflect economic reality in any way whatsoever. Our economy has not even come close to recovering to the level it was at prior to the last financial crisis, and yet thanks to massive Federal Reserve money printing stock prices have soared to unprecedented heights.
At some point a massive correction is coming. No stock market bubble lasts forever. For a whole bunch of technical reasons why serious market turmoil is on the horizon, please see a recent Forbes article entitled “These 23 Charts Prove That Stocks Are Heading For A Devastating Crash“.
The bubbles in the financial markets have become so glaring that even the central bankers are starting to warn us about them.