(This is Part 9 of a continuing series. Back to Part 8.)
Now the thing about manias and bubbles is this:
The reason bubbles go down is because they went up.
Things come down because they went up. When we throw a ball in the air it must come down again. When a mania goes up, it must come down again. It seems to be some sort of universal rule. We see it in empires, in organisms, in fads—everywhere.
Anyway, the downside of a financial mania—the right side of that mountain peak—is a depression, which can be either inflationary or deflationary. And since the upside of this credit bubble and its daughter bubbles has been so extreme, the resulting depression (the downside of the mania) will probably be on a similar scale.
Not long after the stock market bubble peaked and burst, followed by the initial descent of the dollar from its peak, we've had the real estate market begin to reach the final stage of its ascent. These three bubbles are just different faces of the Great Global Credit Bubble.
The dollar bubble was a long time in the making. "The strong dollar" policy advocated by every administration since Roosevelt accopanied a rise in the dollar like a meteor against the sky. But now the downside of that bubble is underway.
We're borrowing $550 billion from abroad every year so we can continue to spend more than we sell—that's what's called the "current account deficit" and keeps hammering at the dollar on the downside.
In this and other accumulations of debt we in the U.S. have been living beyond our means for many years now, spending much and saving very little. As a consequence, we'll ultimately find ourselves at a much lower standard of living.
The Great Global Credit Bubble, the great mother bubble, is showing up among states, municipalities, consumers, businesses and national governments around the world. There have been credit bubbles before, but nothing like this. This is the largest one in history by far, which is why its unwinding will be historic as well.
Meanwhile real estate prices, the fourth bubble, are rising rapidly. They've risen far faster than inflation, to the point now where "Become a millionaire through real estate!" ads are endemic. Everybody now "knows" that real estate is the only dependable game in town. But if history is any guide, that will change within a few years.
All bubbles must come to an end. This bubble too will almost certainly come down to price levels undreamt of today, perhaps 80% down from the top.
In my opinion, it doesn't matter much now what fiscal policies the government does or doesn't follow, what the Fed does or doesn't do, or what the latest statistics are. The financial processes taking place now are simply vast, and the piercing of these gigantic bubbles is and will be a phenomenon far larger than any fiscal or financial policy can affect, except in the short-term.
Everything in life breathes in and out. It's impossible to have "in" breaths without "out" breaths. It's impossible to have light without darkness, up without down.
Similarly, everything rises and falls. Empires rise and fall, the humblest insect rises and falls, our own body rises and falls. That's the exquisite duality of life, the duality that makes everything possible—that makes possible the very existence of existence.
(This is the end of Part 9. Go to Part 10.)
—jim sloman, 6.21.03 for Oct 24
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