True Booming Economy versus Multi Bubble Economy ?

As we all know, the global economy confronts one of the toughest crises in history.

From my point of view, this is not an ordinary recession. There are a lot of beliefs that we can all cycle out of recession. Is that really possible though? I have underlined US Dollar would still remain as the key reserve currency for next decades. I am convinced that there is right way to look at current crises in sequence of bubbles. David (2010) outlines how different natures of bubbles have advanced and today’s post will provide you insightful analysis of how each bubble developed for the worst ever in the history.

American economy in particular, the house price rose on inflation-adjusted basis until 1980s and then exploded in 2001. Moreover, Stock market bubble continued after the real estate bubble with the notion that Dow had risen 300 % from 1928 to 1982 for 54 years whereas Dow between 1983 and 1992 has increased substantially by 1200 %, growing four time faster than before without having an actual economic growth. (i.e. GDP or company earnings)

Private debt bubble was not significant as the real estate and stock market bubble after the economy itself had self control on their respective responsibilities within the society with belief in continuous growth in asset values and a prosperous and healthy economy that no one did not even make any chances on. The Housing price in the US has dramatically fell in 2006 as the result of the real estate, stock market and private debt bubble where there was default on numbers on loans from individuals who made the wrong assumption on the American economy. There was somewhat a little influence on the discretionary spending bubble. Yet, this came turning point of changing in the pattern of behaviors such as consumer’s irrationalized spending due to growth in housing price and stock market growing at such fast pace where various credit facilities were largely available. 

Also, our necessities includes discretionary components where consumers easily give up on the purchases if good alternative. Yet, the real estate, stock market, and private debt bubbles to certain extent have brought negative impact on consumer confidence when the bubble pops. Due to multi bubble economy (i.e. the United States), there was currency bubble, namely, the dollar bubble had a significant impact on falling value on dollars, despite government’s earnest effort. The next government debt bubble, is the worst kind of all where book value of the debt exceeded $12 trillion though it was 8.5% trillion in 2006 in the United States. Bad debts in Europe have not been fully written down by other EU member states. Despite constant effort to stretch the debt ceiling, the government debt bubble found to be the worst, threatening bubble of all relative to other bubbles in the US economy.  

So, What's next ? 

Peter Thiel, founder of PayPal cogitates ‘Higher education’ as the next bubble after the government debt bubble. He decisively defines the bubble as “when something is overvalued and intensely believed, sort of economic version with short-lived passion.”  - The education perfectly fits the definition. Higher education tuition is already too high and surprisingly; feel increase every year not in proportion to the improvement in education quality. Thus, students’ debt loads are unreasonable. 

Yet, students make the investments by getting loan from financial institutions and private lenders, as education for them is equivalent of a form of insurance against the future. Higher education is already overvalued that what it can actually yield. In United States, President George W. Bush made it clear that education loans cannot be canceled by a personal bankruptcy. Also, if an individual with education loan fails , they will stuck with the debt and become a heavy burdensome for nearly all students on the planet whose his or her parents are wealthy enough to support higher education. 


Is the global economy genuinely booming now? or is it another creation of bubble by human beings ? My answer to today's post is just sad reality. The economy is not booming because I believe that economy is evolving.  I think one way to prevent the bubble happening frequently is to continuously learn the mistakes and make changes accordingly rather than strongly believing in "Greed is good". Oh, well - let's be careful with "The Great Recession" 

Further Reading 1
http://thestoppedclock.blogspot.com/2011/07/building-economy-of-bubbles.html


Further Reading 2
http://www.forbes.com/sites/peterjreilly/2011/11/02/when-will-the-education-bubble-explode/


Further Reading 3
http://www.cogwriter.com/news/prophecy/great-recession-of-2011-2012/