A stimulating discussion about asset bubbles ensues on Fakebook.
I used to believe that asset bubbles existed (e.g. stock market bubbles, housing bubbles, etc.). I don’t believe that anymore and a big reason is because of Forbes editor John Tamny.
Tamny focuses on the DUH-obvious fact of financial markets: for every buyer, there is a seller.
Meaning, if there is a huge debt “bubble,” then there must, by definition, be a huge SAVING “bubble.” If thre is a huge stock market “bubble,” then there must be a short selling “bubble.”
Bubbles always imply an endless number of buyers willing to “push” asset prices up to nosebleed levels.
For every bull, there is a bear.
Meaning, for every “to the moon” buyer… there is a “crash and burn” seller.
But for some reason, no one ever talks about bearish bubbles. They only talk about bullish ones.
Take the idea of a debt “bubble”, for example. Even if the government “prints” endless amount of money, it has to do something with it. What it does is buy U.S. Treasuries which… are SOLD to investors (i.e. savers).
So on one side of government bonds are savers and on the other, debtors (the U.S. government being the debtor in this case).
Seems weird considering the national savings rate is only 5%. Weird but true because all bonds (including Treasuries) require a saver to act as the lender. That’s what a bond IS — a loan.
And… my dear reader… do you suppose you (or any other smart investor) would mindlessly lend money to someone who wouldn’t pay you back?
The question answers itself.
I been thinking about all this savings business and how much better interest rates would be if there were more savers demanding more interest (they do, after all, supply the money for investment).