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What is the next bubble?

(Tentatively ...)

Let's see. It's a decade-and-a-bit since Web 1.0 exploded messily. 2007 saw the initial bursting of the real estate bubble, propagating worldwide in 2008 and expanding into a full-bore liquidity crisis and a near-collapse of the global banking system. 2010 sees the Euro zone in crisis, somewhat mitigated by a spurt of growth in the German economy — and a British government that seems hell-bent on triggering a painfully sharp double-dip recession by slamming the brakes on government spending excessively hard.

On an orthogonal note, I am getting the impression from my reading that the accounting regulations imposed by Sarbanes-Oxley in the US has drastically reduced the attractiveness of the traditional IPO as an exit strategy for founders of start-ups: this might even be retarding the growth of a second web/mobile related market bubble.

Stuff is churning away under the waterline of the global economy. We're living through a period of unprecedented rapid change. Taking measures to suppress bubbles seems to be the new orthodoxy — after all, no investor likes to lose their shirt — but I've got a gut feeling that if you suppress bubbles you just end up building up pressure for an explosion somewhere else.

What am I missing?

249 Comments

1:

Well, we've already seen massive volatility in world food prices, thanks to our 'friends' the speculators - maybe we should be looking in that direction?

2:

Gold, biotech (mass anti-biotic resistance suddenly makes a lot of previously routine procedures and many near future developments much less attractive when cutting into you has a massive risk of post-operation infection) and with the inevitable military cuts the US and UK are going to make,(western) weapons development.


Oh, and traditional (none-ip) comms.

3:

Post Peak Charlie, its now a zero sum game. For something to bubble, something else has to burst.

Of course, bubble and burst can be in different regions.

4:

You're probably missing the lack of credit to drive another bubble. Seriously, I thnk Mike is spot-on with this one. All that's left now is too pay off the debts and watch in horror as the asset bubble is unwound. We're nowhere near the end of that job.

Ken fingered green energy as the next likely candidate in his opinion and the currect interest from hedge funds in paying to put solar panels on people's roofs certainly shows that the guaranteed feed-in tarifs are too generous by far.

5:

The commodities bubbles were a side-effect of the banking crisis; if stocks and derivatives are tanking, and the market as a whole is going down, and government bonds are performing poorly, that leaves physical assets. Real estate being out of the picture for now, that boils down to physical stuff -- oil, food, materials.

6:

Green tech is the easy one to go "that'll be the next bubble", but it's a hard sell to investors as there's not a lot of profit to be made (yet).

Web I doubt will bubble again, mobile apps I can't see happening purely as so many developers are cool about making money without the need of massive investment.

I think part of the problem is a lot of investors at the moment either come from backgrounds where they invested in Web 1.0 and lost out, or the big angel investment firms have people who worked the industry, made money and got the hello out of dodge. Changes your outlook when you've seen it firsthand.

Space will probably bubble in 10-20 years time if/when commercial flights can prices down. Most probably sub-orb flights being the biggy rather than postcards from the Moon. Aside from that I can't see anything bubbling up for a long while.

7:

The physical stuff is nice...but for it to have any value you need the economy to be buzzing along a little- slow that down and people burn less fuel, build less stuff, buy less expensive food...

Apparently we just have a lot of large pools of cash sitting idle on balance sheets waiting for something to be worth investing in-- the other stuff proved to be not quite good enough.

As for possibilities...government bonds again, sooner or later?
Or currencies?

And do we include government spending as a bubble-making possibility, or just private sector?

8:

I think the essential thing to realise about bubbles is that you don't see them coming. If significant numbers of people did see them coming, they wouldn't bubble - the market would flatten them into smooth growth. The essence of a bubble is unrealistic expectations causing a surge in investment that is not met by performance in the market. Any investor who knew about it in advance would obviously have realistic expectations. Hence, a bubble can only occur unexpectedly.

Of course, after every bubble you get people standing up to say that they called it long before. But that's just a selection bias: somebody says that about everything, and the ones who are right by dumb luck then claim credit.

9:

Is "Intellectual Property" too easy to claim? Newspapers, Music, TV, Books, Movies. Anything that relied on a captive audience for it's attention over the past 50-100 years.

http://blog.ericreasons.com/2009/06/intellectual-property-and-deflation-of.html

This, of course, assumes that you can call upheaval in such long-established industries a "bubble".

10:

Anthony @4: Asset bubble won't ever unwind, it's on an upwards trend until we reach the point where the length of time it takes to pay off your mortgage intersects with your life expectancy.

As long as there's a clutch of people in the middle (government, lawyers, surveyors, estate agents) taking a percentage cut on every transaction, the only way people can retain value on their house is to sell at X% higher than they bought it.

And as long as people are buying houses with someone else's money (a mortgage) they'll be willing to meet that price if the lender is willing to provide the loan.

Which of course they are, because they'd rather you paid them Y% in interest each year across 50 years than across 25 years.

If they ever got rid of inheritence tax so the "asset" the loan is secured against could be inherited in full, I'm sure we'd end up with multi-generational mortgages in short order.

One of the IMO more horrifying likely consequences of longevity treatments that never seems to crop up in sci-fi is the idea of facing 400 years of 9-to-5 grind to pay off your mortgage. :P

11:

Spaceflight? Well, one can hope. I mean, all you've done by explaining why human spaceflight isn't economically rational is say "well, fine, all we need now is a period of economic irrationality!"

For a bubble, what you need is cheap leverage and a new sort of investment: whether that's a new economic sector (railways) or a new financial product (securitisation). We've got the former, just need the latter now.

12:

Zero expertise disclaimer.

I reckon, locally booming economies: meaning, cities and resource-extracting regions which are attracting lots of people from the countryside or upgrading rapidly from slums. Russia, India, Brazil, Indonesia would be the type of nations offering such situations.

The condition for a bubble to form would be financiers who can claim to have made a lot of money out of knowing the territory and having the connections. The claims could only be vetted by the kind of experts who could make the investments themselves, so it would go by reputation.

In one way Dubai shows what is possible with a local hold on resources and cheap labour; in another way China shows how fast managed developments can be.

Whether such mushroom economies are viable beyond a quick growth spurt is irrelevant to the bubble promoters, of course.

13:

These kind of bubbles allways makes me think of the book "Excession" by Ian banks and the "outside context problem"

"This is a problem that is "outside the context" as it is generally not considered until it occurs, and the capacity to actually conceive of or consider the OCP in the first place may not be possible or very limited..."

http://en.wikipedia.org/wiki/Excession#Outside_Context_Problem

14:
I've got a gut feeling that if you suppress bubbles you just end up building up pressure for an explosion somewhere else.

What am I missing?

What I think you're missing is that the current bubble suppression techniques will only prevent the bubbles that we've already seen. They will be relatively worthless against new kinds of bubbles.

Unfortunately I have no idea what these new kinds of bubbles will be. Something in the mobile web sounds attractive, but it'll take at least a few years more before it springs up. (Disclaimer: I work in the mobile web, so I may be biased.)

Other than that it's anyone's guess: it'll be something that'll make you a lot of money in an easy way, but other than that I don't know.

15:

Ultra Long Bonds are bubbling at the moment (Have a look at 50yr France - 3.55%); although some argue that that may well be markets pricing economic stagnation al la Japan (were long rates are even lower the 30yr is 1.61%)

Asian Property is in a bubble that authorities are increasingly trying to stamp out.

Some ETFs have a lot of features of bubbles, particularly commodities.

Implied correlation is in a HFT/EFT induced bubble leading to huge issuance of structured notes. Hedging correlation risk is notoriously difficult someone is bound to get it badly wrong.

UK property is still a bubble.

The US defence budget is a bubble.

The real problem is there is simply too much debt in the World & it will have to be reduced either by default of inflation/monetization.

16:

The exact moment a bubble pops is unexpected. Until it does, though, it's still a great investment.

And the people who aren't investors in it probably aren't paying attention to it, and the people who are investors certainly don't feel like popping it themselves by bad-mouthing it.

17:

Sam @9

I disagree. We're already seeing people walk away from mortgages in the US. Some can't pay and some have realised that they'll never make money on the house so it's in their own interest to hand back the keys and start again.

Add that to the reluctance to lend to anyone with a less than perfect credit record and a hefty deposit in hand and you can see that residential property as an investment is over. Yes, the estate agents will always try to talk the market up but there's nowehere left to go, houses are too expensive as they are.

I also expect to see large numbers of buy-to-let investors in the UK take a bath as housing benefit is scaled back (Not before time).

18:

Charlie's right - there is a lot of cash swilling around looking for places to invest. The fact that it IS sitting around suggests that greedier and more avaricious minds than our own are also struggling to answer the same question.

I think credit is somewhere where we may see a short-term bubble. Investors don't want to go near the big banks (they don't trust their competence, and fear additional hidden debts) but there is a lot of room for lean competitors to come in.

Especially when the banks are turning away super-prime customers on the basic grounds that they have run out of allocated funds.

Of course, if you're in the UK market, the right place to be investing is in the private sector firms likely to win contracts to provide public sector services / necessary services no longer provided by the public sector.

Of course, if Charlie's right, there may not BE a UK market after the Scottish referendum.

19:

I don't think you can predict "what the next bubble will be". I do think that you can diagnose a pathological bubble market whilst it is still several years off its peak though. Some of my mates and I diagnosed the housing bubble back in 2005/05, and we were surprised by how long it kept growing, and are still surprised by how little it's dropped since.

20:

Antony @9: Sure, those things happen, it happened during previous "housing crashes" too. Y'know what? Didn't stop things for long.

The housing "bubble" doesn't burst, it merely overshoots and overcorrects sometimes, and some people lose a lot of money, but never as much as was made. (And often lost by the people who weren't making the money.)

"Too expensive" has nothing to do with anything, people will buy whatever monthly payment they think they can afford (realistically or otherwise), and that means that the price is determined by the bank deciding how long to lend to them... longer being better for the bank.

People were saying house prices were "too expensive" in the 90s, in the 80s, and probably long before that, they've still gone up an order of magnitude more than non-housing inflation in that time - because the price people watch is their monthly payments.

As long as that holds true, then the price has nothing to do with affordability until we run out of months to extend the repayment over or banks run out of money to lend to us (which is *really* what has happened recently, along with truly awful choices on what was and wasn't affordable).

21:

Eventually, I think the US student loan bubble will bust. Some colleges charge 100,000+ for an undergratuate4 degree in literature. Not to mention law students and medical students and on another 100,000+, and jobs for the former aren't paying like they used to.

22:

#12 - I don't know if bubbles are always Outside Context Problems.

It seems to me that they are often recognized as bubbles - the South Sea Bubble, for instance, or more recently property in the UK. It's just that even with a recognizable bubble, there is the potential for money to be made.

And of course far easier, short-term money, than investing in something for the long-term.

The .com bubble was widely criticised and satirised at the time. I remember friends working in .com firms who were incredulous that people were investing in them.

23:

You're missing the fact that the economy as a whole is contracting because of the inflation caused by the previous bubbles. Not so much the high tech ones, but the fraud-filled financial ones. Your best source on where the economy is going is to get come good, solid sources on the Great Depression.

As for the next technological advances, I will go with green technology. We certainly need it, and environmentalism has been in the air ever since the original hippies discovered the Save the Planet meme - and have been proven by later science to have been onto something. Green tech has the advantage of being multiply useful: it not only saves the planet, it saves money. And fast-fading resources.

Local space development: near-Earth orbit, outer Earth orbit, and yes, possibly a moonbase - and I'm afraid we'll see some military-triggered technological advances.

The world is heating up rapidly. Militant Islam, or at least one segment of it, is in a puritanical, fanatic, and expansionist stage - think of Calvin et. al. in headcloths. Opposed by India in Asia, Israel backed by America in the Middle East, and Europe because they seem to be targeting Europe as well. And Russia, which is having a lot of trouble with its Muslim satrapies.

China is feeling its oats. And they are North Korea's not-so-silent partner. And North Korea is not only rattling sabers, they're going to have a succession crisis sometime soon. And China has a surplus of young men, thanks to its one-child policy. Young men without wives and without jobs -- if that happens to China's economy -- historically have been the stuff of which armies are made. If only to keep them from causing trouble at home.

Now to go to my room and drown my bleak outlook in coffee.

24:

Maybe IP?

25:

Viewing things through the lens of abundance vs. scarcity and the economic upending that follows a change in those parameters, I'd say that the Education Bubble is the next to burst.

Absurdly high tuition rates in support of what is no longer limited by space and time constraints - pop!

26:

I don't think bubbles are predictable in advance, because they're like fashion: they're driven by hype, and it's very hard to tell what's going to be "in" and what isn't, until there's a buzz about it happening and feeding on itself.

Being overhyped isn't sufficient, people need to believe that there's enough other people who are buying into the hype, to be convinced to buy into the hype themselves.

Recognising a bubble is usually pretty easy IMO, but as others have said, knowing that something is a bubble dosn't stop it being a fast way to make money on the way up - it just becomes a game of musical chairs to see who gets caught out when the music stops.

I think there's going to be another bubble remarkably soon, because as other people have said, there's tons of cash sitting around in piles in the world economy at the moment, just waiting for something that looks moderately safe to invest in and start earning again.

Whenever you get too much liquidity chasing too little investment, you tend to get bubbles, the question is how big does it get before it bursts.

At the moment I think people are too tentative with their investments, backing off at the first sign of loss, for any bubble to really get far, but people are going to start to get desperate for RoI from all that cash, and they're going to make bad decisions when they finally get the guts to act on it.

So, my prediction is a bubble in whatever industry first looks likely that it's going to start making a decent profit, compared to all the lukewarm prospects out there currently.

I've a strong suspicion it'll come out of the "emerging economies", and may well be carried by their growth for long enough to not be recognised as the next bubble.

27:

Either: grain futures (the old Malthusian numbers trap)
Or: the carbon credits scam and its derivatives market ("so nebulous and distant from the real work being done that we won't understand it exploding in our faces until it does" racket if ever there was one).

28:

While you can't predict bubbles, a field where those involved are feeling increasingly nervous is High-freqency trading.

"quote stuffing" by starting high volumes of bids that you don't intend to complete, in order to give yourself a few milliseconds advantage while your competitors figure out whats going on ... makes it challenging for regulators to ride the chaos and avoid stock market crashes.

29:

The next bubble is gold.

Governments are spent, they have nothing left in the war chest and their populaces are demanding that they reign in spending... whether you like it or not.

Which leaves monetary policy to pickup the slack, the Fed and bank of England will go full bore on quantative easing "priming the pumps" so to speak and sooner or later that will gain traction. The problem will be governments will be in full on cutting mode and there will be huge pressure to keep the monetary pump pumping in order to "assure escape velocity".

Why gold, well even now it's sitting around $1200 that's up from around $300 at the beginning of the last decade, 10 years or so of continuous gains and is anyone paying it any attention? Nope, it's still universally reviled or ignored by the mainstream.

Housing is still overvalued, commodities like oil won't be speculated up again because under present circumstances I imagine that such speculation would be curtailed for fear of seriously damaging "the recovery". Gold on the otherhand, is a useless metal it certainly doesn't power cars or cause gdp growth to slow due to it's appreciation.

I expect gold will really take off when the ECB capitulates and starts pumping over the howls and protestations of the germans because a number of the southern states will threaten to leave the EMU unless the ECB starts buying their debt. The germans interestingly enough are already printing their own currencies at regional level... I am sure some bright spark will come along and link one of those regional (and legal) currencies to gold and all hell will break loose.

30:

Charlie says: We're living through a period of unprecedented rapid change. Taking measures to suppress bubbles seems to be the new orthodoxy —but I've got a gut feeling that if you suppress bubbles you just end up building up pressure for an explosion somewhere else.

But isn't part of the bubble stories that we are not really living through a period of unprecedented massive change? Especially in advanced economies?

Bubbles appear because people think there should be lots of high-performing investment opportunities out there, while in fact most is boring low-yield stuff, or just stupidly risky on closer look.

The standard story of every bubble:
- It looks too good to be true.
- But it is true! Because there are unprecedented changes to the market! Technology! Advanced financial products! New markets!
- It really was too good to be true.

31:

Tangential to the main post, but interesting and perhaps suggestive; today it was announced that Japan is no longer the 2nd-largest economy in the world. A combination of stagnation in Japanese markets and the soaring Chinese economy have bumped Japan to #3 and China to #2.

Perhaps the next bubble will be the Chinese export capacity exceeding the world's capacity to import consumer goods, combined with the rising costs of labour (and higher expectations in standard of living) in China itself?

-- Steve

32:

The China real estate hasn't burst yet but will be painful when it does. (caused by keeping interest rates too low and pegging the Yuan - not by any attempt to prevent a bubble.)

I find your post to be painfully libertarian. I mean who was trying to prevent the housing bubble? If anything the Fed was pumping it.

The last great bubble period was during the no-regulation Gilded Age. It is the waves of Reagonomic de-regulation that have primed the economy for bubbles again now not any sort of transformative technology.

33:

I wrote a comment to an article of The Economist on that topic about a year ago. I hope it's OK to copy it here.

Original article was "A developing bull market" - in the issue of Nov 26th 2009. Access to the article is restricted to paying subscribers, unfortunately. My comment was:

Well, a bubble it will be, but what kind of bubble?

Any bubble worth its name needs certain characteristics. The way in which they materialize can be very different though.

As mentioned in the article, a bubble will need a plentiful supply of money with nothing interesting to invest it in. Having a lot of something and nothing much to do with it is the one and only thing you need to inspire people's creativity. Unfortunately, if stuff you have too much of is money and the only thing you want is to have even more of it, even though you already have more than you know what to do with it, the results of such creativity will vary wildly.

In the best of all worlds, an investment opportunity will present itself, a new market will appear and investors will be distracted enough to stop being creative and concentrate on doing business as usual.

One other thing that might happen is something like the .com bubble. Despite its name, it wasn't all that much about the .coms. It was about IT and infrastructure. Optical fibers were dug into the ground and laid on the bottom of the oceans at a prodigious rate, pretty much ruining the market for communication satellites, but also providing us with the necessary foundation to establish the internet as we know it. Faster computers were built and developed. Much pain and many tears followed the eventual deflation of this bubble, but its legacy is a gift that keeps on giving. All the more so as we learn how to use the fibres in the ground ever more efficiently.

It is another story with such bubbles as the famous Tulip mania. An otherwise unremarkable and inconsequential good suddenly becomes attractive for investors. All that is needed now, is sufficient investment into the good that demand outstrips supply far beyond all hope of satisfaction. This is the point when more investment will readily increase yields and thus attract even more investments. Until, at some point, people begin to doubt their failed sanity and the whole thing is buried in the history books. The only legacy it left behind is quite a variety of (now rather cheap and) colourful tulips.

A much more, shall we say, sinister kind of bubble is one that works in the exact same way, with the only difference that it is a good of some consequence. Like food. Food prices skyrocket and people will begin to starve, starting with the poorest. Often enough, these days, politicians have the good sense to see that, even though markets will indeed correct such foolishness in the long run, it is a good idea to intervene (relatively) early. For in the long run, we're all dead.

And then, of course, there's the finance bubble. It is fair to call it a Ponzi scheme writ large. It dispenses with the need for any physical goods to come into being. All you need are financial products that, through some non-obvious mechanism, feed investments back into themselves and create the illusion of profit through the propagation of numbers. The problem is, that since nothing of all that is bound to physical objects, the Minsky-Moment, when people realize just how foolish the construct is, will happen after a much longer time. And the damage wrought can be quite astonishing.

What all bubbles have in common, is that they create profits where (given a sober assessment) there are none. In the case of a bubble associated with the establishment of new technologies and services this lapse of rational thinking of the individual investor may indeed be a good thing to some extent. Railroads and the Internet are only two examples.

In the other cases, no physical benefit is derived from the bubble. This means that investments are redirected towards futile pursuits and unemployment or underinvestment in the rest of the economy are the result.

And even though, in the long run, the markets will correct their excesses, the result is *universally* a net loss in economic activity and a waste of human potential that cannot be discussed away, no matter how hard the apologists of the laissez-faire approach to financial markets try.

34:

Actually, I think education generally could be the next bubble. What exactly is it for? Most of the skills imparted are worthless. The expense was only justified when it identified you as a member of the elite. Now everyone has a 'degree', what's it really worth?

New approaches like Internet impart all the information you need for free.

35:

#32 - sure, in things like, say, "raw history". Do you think you could integrate the area under a curve armed only with the Wikipedia article? Or would it need someone who's written PR_INTEGRATE_AREA ( in - parameter list defining curve; out - area under curve ) to have known how to do it, actually do it, and make the resultant code available to you?

36:

Information is not knowledge, and the Internet cannot impart skills.

And I find the idea that the skills of higher education are worthless to be apalling, particularly in a democracy. At the very least higher education should be imparting research and BS-detection skills... even if not intentionally. (*strokes chin, reminisces about certain idiot professors encountered*)

-- Steve

37:

Gold is bubbling. Treasuries are bubbling.

We're seeing a bubble in investments associated with "safety" (ie the hope of capital preservation).

What's bad about this in the long run is that the only way to burst these bubbles is for the underlying safety of the investments to be destroyed. Think sovereign default and bankruptcy of the institutions offering vehicles in the Gold market. Scary stuff.

38:

Only insects are specialists? :-) (although that plunges us straight back into a couple of existing threads...)

Perhaps it depends on how you determine what's worthless, though. I have a fairly worthless degree, in terms of direct applicability to life, but I seem to have done alright out of it (not that there's an easy way to A-B test my life without it); education isn't just supplying a big bag of facts to you that you could just as easily download from Wikipedia...

39:

I'm going to gamble on Biodiversity (frogs) will take a hit. We've already seen the line "dying frogs are a sign of a biodiversity crisis"; but has anyone actually thought about what that means on a human civilisation wide basis?
I'd wager no - there are only treehuggers, alarmists and biologists who care off the top of my head.
You also see alarming articles about GM food up and migrating to fields next door - and doing better than the wild varieties.

We haven't seen much business uptake of engineered biology outside of the traditional industries - pharmaceuticals, agriculture, and medicine - but what else is truely possible with biology?
I'd argue right now we are in the assembly stage: MOV here, ADD that; etc - where's the C of genetic engineering?
Or the Java?
Or the Ruby?

What happens when you start thinking about networked biology - the internet of plants? Spam, scams and bio-facebook? X wants to make friends because they have a sample of your DNA you sneeze on them by accident? Advertisers targeting your gene sequence, knowing you have a predisposition towards smoking?

Gattaca is the only thing I can think of which touched, very briefly, on these subjects.
Also; Iceland having sequenced its population - how will having a somewhat predictive database of genes influence health policy?

If we see the equivalent of compilers (petri dish 2.0?), debuggers (gene sequencer 2.0?), "bioengineering for dummies", and massive databases (biordf?); what will that mean for your average biologist?

To bring it back to the original question: what will any joker with an MBA think it means to an average biologist?

40:

At least for me, higher education was more about learning how to deal with complex work loads than actually just taking in facts.

There's a difference between "Tell me what a red-black tree memory manager is." and "Implement one, and make it good."

41:

I'm not sure I understand the concept of a "bubble", if things like government defense spending can conceivably be classified as one. My view of a "bubble" is an investment or class of economic activity -- a material good, type of loan, stock, what-have-you -- that is currently appreciating in (alleged) value at a rate far above that of other investments, and far, far above the rate of inflation. So when people suggest the existence of an "education bubble", I'm sympathetic to that idea, given that college tuitions have risen far above the inflation rate for a couple of decades running. This pattern is essentially subsidized by government, however, in the form of student loans and other programs designed to push the highest proportion of youngsters through college as possible, whether a bachelor's degree is really necessary for anything they plan to do in life or not.

Through that lens, other than education, the one category of expense/investment that qualifies is health care. This is obviously a special category, but in general costs involved in health care rise faster than anything else these days, and to little effect (based on cursory examination of the most basic health statistics, such as mean lifespan, mortality rates from various diseases, etc.) It seems unlikely, but if a significant proportion of people ever realize that health care is nothing more than another consumer good -- that, for example, statins can be replaced by a decent diet and nutritional supplements, or that specialists and administrators in all disciplines are horrendously overpaid -- well, then a sector of the economy measure in double-digit percentages these days is primed for an historic collapse.

42:

I have not heard anything about SarbOx making IPO's unattractive, though it does tend to ensure the investment banks get their cut.

I'm voting mobile/ubiquitous computing as the next bubble

43:

I thought the next bubble was already recognized: Chinese real estate.

If you don't want to count that, then remember the US is headed for deflation, which is the opposite of a bubble; it is a downward spiral. So perhaps you should rephrase the question to "what is the next major rupture in the world economy?"

44:


Paul Krugman says the dot com bubble became the real estate bubble, so economically they may count as one.

Seeing the last few bubbles a chain then, where one crazy overvaluation is used to refinance the previous, I'd say the biggest upcoming bubble could be one of Federal solvency.

I mean, I believe in Keynesian economics, but today's New Deal is for billionaires, not for the real work force. The US government is making a non-growth investment which will ultimately require a lot more bail-outs. How many more illusions can we afford to prop up? Two? Ten? Either way it's finite.

And we'd sooner bankrupt the country than tax the crap out of our darling billionaires.

45:

By the way, if you are looking for raw data on financial crises, consider This Time Is Different: Eight Centuries of Financial Folly. The underlying point of the book is that the next time you hear "This Time Is Different", run for the hills.

46:

I nominate “green technology” for the next bubble, on the grounds that a bubble generally starts out as a family of genuinely promising investments.

47:

I'd have to say that in U.S. at least, education looks like the Next Big Thing. Looking in the local papers, it seems that demand for teachers seems to be way up (though not their salaries, sigh.)

Of course, even after these people get a degree from their local for profit college, their job prospects don't seem much - if any - improved, but Uncle Sammy is awfully free with what is euphemistically called "education assistance", re, loans that will have to be paid back. But a lot of people are scared and grasping at straws right now. It's not sustainable of course, and this is only working because education in the U.S. is not really valued for education.

Several people have already mentioned this, but I thought I'd come in late and go with the flow. It really is a different kind of bubble in the sense that most of the ones I have heard of in the past have been based on some sort of tangible offering such as real estate.

48:

#39 - As we're using the term, I'd say that a "bubble market" can be best defined as one where the value of a commodity is rising driven by a pathological need to buy that commodity, rather than because that commodity is actually generating returns based on how much you're spending on buying it.

See http://en.wikipedia.org/wiki/South_Sea_Bubble and http://en.wikipedia.org/wiki/Dot-com_bubble for further info and a couple of well-known examples.

49:

@8:

Of course, after every bubble you get people standing up to say that they called it long before. But that's just a selection bias: somebody says that about everything, and the ones who are right by dumb luck then claim credit.

Actually, the catch-phrase seems to be "The market can stay irrational longer than the investor can stay solvent." Lots of people can recognize that the market is not performing correctly (shoot, I knew this, having recently bought a house); but selling short and playing safe only encourages the masses to invest elsewhere where the props freewill with abandon, causing the prudent player to go broke.

The problem is not calling a bubble a bubble, iow, it is in knowing when to get out. That is the rub. Who cares how wildly overpriced a given commodity is as long as you get out before adjustments are made?

50:

China. As a package, not just real estate.

Breathless articles in the news (check)
Endless amounts of money chasing it (check)
Disruption / social unrest would seriously damage western interests (check)

51:

AI?

The tech boom certainly wasn't a "cannot fail", but ai would be quite faily, I'd have thought.

52:

#38 - Agreed about the value proposition of education. Have you noticed though, that the value proposition you describe is really hard to include in an exam and that as a consequence, education is consistently drawn more towards the fact based remember/regurgitate model?

53:

@16:

Add that to the reluctance to lend to anyone with a less than perfect credit record and a hefty deposit in hand and you can see that residential property as an investment is over. Yes, the estate agents will always try to talk the market up but there's nowehere left to go, houses are too expensive as they are.

I would hope that everyone knows that the reason why housing and real-estate is still way over-priced (in the United States at least) is to keep fiction that the big financial houses are solvent (barely) tolerable. The plan seems to be to loan the players large sums of essentially interest-free money for them to invest in government securities instead of making it available to the man on the street. Maintain this for ten years while denying middle-class relief like cramdowns, avoiding mark-to-market pricing, etc., and presto! The zombie banks are restored to life! Of course, this is probably the least efficient way to make the banks healthy again, and it's at enormous cost to everyone else . . . but everyone else doesn't count.

The FIRE sector, it will always be with us. It would be interesting to see how it is kept under control in the future because this seems to be a political and not an economic or technological problem. Even after commercial fusion goes online, after people have life expectancies in excess of 150 years and orbital vacations become a commonplace (for some) these guys will still be causing headaches. Going back to the Heinlein thread and books like "Beyond This Horizon", it's easy to see the appeal of technocracy as a political movement. Maybe that's why economics and economists were co-opted half a century ago.

54:

Ups and downs have always been with us, but Reagan-Bush-Clinton-Bush (and Thatcher etc... on your side) stripped all the regulations that were put in place after the great depression to prevent people from manufacturing money out of the ether. This is what caused the crashes in 2000 and 2007. Stuff coming home to roost and all that.

My understanding is that the European states apart from your own isle are stamping down as hard as they can while still being towed along by the US economy. It seems we're doomed to learn the hard way why those regulations were there, and why having a powerful SEC is a good thing.

@44: Neither the Internet nor the housing bubble were promising investments. The green revolution isn't either. Any investment that fails the "returns sniff test" is a bad one. Most of the Internet stocks were companies valued at $50+ a share that didn't make money, and had no idea how they were ever going to make money. For every Google you had ten companies giving away free bar code readers.

The housing bubble was just insane. You saw people investing in junk debt that anyone with a lick of sense knew were going into default. The act of chopping the debt into pieces so that no one know what was what was an obvious ploy to obscure their craptitude.

Much of the green stuff also fails the sniff. Spending $24,000 on solar panels or super windows to save $50 a month on utility bills springs immediately to mind. While the much less sexy practice of putting more insulation in your attic pays back within two years.

That's what government regulation is FOR. To protect that government's citizens from themselves as much as from others.

55:

@17:

Charlie's right - there is a lot of cash swilling around looking for places to invest. The fact that it IS sitting around suggests that greedier and more avaricious minds than our own are also struggling to answer the same question.

Well . . . I'd say it's the fact that there's a certain class of people who demand returns of 10% a year or more each and every year. You might find the writings of Stewart Newberry informative on this issue:

The essential problem of the neo-liberal era is a broken triangle:

1. It has to have low inflation and volatility in the real economy, as well as in the macro-economy, otherwise, those who generate excess profits will not put them back into circulation as liquidity.

2. It has to have low interest rates and low liquidity preference by a sizable share of consumers.

3. It has to have greater volatility for individuals.

These three parts are not stable at the same time. The fundamental assertion of the economic policies, of both parties, for the last 30 years, was destined to blow up. The Japanification thesis was that elites could not permanently juggle the contradictions, and would then seek an endgame, a way to remove these points of volatility. The cost of the play that was chosen, is staggering. Virtually the entire federal budget deficit is caused by the aftermath of the Iraq play.

Unfortunately, his stuff seems to be scattered around, so you can't get the full sense of it. Having lived through the last 30 years as an adult with an adult's perceptions, I think he's on to something.

56:

Funnily enough, a gentleman by the name of Herbert George Wells complained about that a few years back:

"...since the practical object of the teaching was to teach people not science, but how to write answers to these questions, the industry of [educational] Grant-earning assumed a form easily distinguished from any kind of genuine education whatever."

(The precise words come from the narrator of the novel "The New Machiavelli", but it's definitely authorial voice, as well as being sadly true.)

57:

@36:

Only insects are specialists? :-) (although that plunges us straight back into a couple of existing threads...)

Only if dial down the tech level to maybe sometime in 18th century, if you want to go back to several more before that :-)

58:

@39:

I'm not sure I understand the concept of a "bubble", if things like government defense spending can conceivably be classified as one. My view of a "bubble" is an investment or class of economic activity -- a material good, type of loan, stock, what-have-you -- that is currently appreciating in (alleged) value at a rate far above that of other investments, and far, far above the rate of inflation.

That's pretty much right, at least as far as the metrics go: P/E ratios wildly at variance with the norms are the classic indicator. That's not 100% reliable, but they screen out 95% of the bad stuff and less than 1% of the good, so it's a nice first cut. Typically, that's all you need if you're a long-term investor instead of, God forbid, a playah.

59:

Bubbles: if you're feeling lazy, watch Goldman Sachs. Their business model seems to be based on blowing bubbles. Probably other firms are doing the same thing.

Goldman-Sachs was rumored to be trying to get a bubble going in carbon cap-and-trade, but that seems to have died. I hate to say it's fortunate, being an environmentalist and all, but when someone's trying to blow a bubble based on global warming through screwing with the legislation underlying the potential market, that just pisses me off.

As for solar, it felt like they were trying to get a bubble going with these massive solar plants in the desert: every undeveloped acre is under option from some fucking speculator or other, and they're mostly ignoring the environmentalist's efforts to steer the plants to places where they would make sense. However, in the US, the solar plants are predicated on support from the government that expires November 2010, and most of the speculators won't make that option.

US secondary education: don't get me started. That's where I would say there's a bubble. Seriously: why do you have to have a LCD panel display and a classroom wired for everyone's laptop to teach Shakespeare? It's been taught with a few books and a blackboard for centuries. Before you go off on the future of tech, think about this: thirty years ago, that Shakespeare class would have been taught effectively for free tuition in a public university, and it was supported by the government. Now we expect that English major to go massively into debt for the same education. Whatever the state of technology, that's not smart.

Still, if I had to predict a bubble, I would look at universities: lots of debt is pouring in, it's not clear where the money is going, someone else (students and parents) are getting saddled with it, professors in the sciences are really getting forced into the entrepreneurial model, whether or not it fits their field, and teaching is falling on grad students, most of whom will have to leave their field to find employment. I don't like the fact that it doesn't make sense and someone else is holding the financial bag.

The one problem is that academic publishing is a huge profit center for some publishers (see the August 2 post on Scrivenor's Error. If that gets problematic, it will rock the fiction market too.

60:

@21:

A much more, shall we say, sinister kind of bubble is one that works in the exact same way, with the only difference that it is a good of some consequence. Like food.

Or possibly . . . oil? Like what happened a few summers back? People are still scratching their heads over that one and everyone is still saying they got it right as to whether or not some speculative manipulation was involved.

61:

An economy is a way to get work done.

What work is socially determined; there's currently a five-cornered argument going on between rising economies trying to generate material prosperity for the whole of their populations, established sectors of advanced economies, innovative sectors of advanced economies, the profit-maximizer faction various distributed, and the folks getting panicked about anthropogenic environmental change.

Since no one faction can win the argument, this produces a kind of pseudo-stability, and a bubble (at this very high level of abstraction) is a bunch of people thinking they can get either different rules or a rule exception that will let them change relative social position via some non-standard means. Since we're in that period of rapid change, we're having a very intense argument about what kind of work should be done, at what priority, and my general expectation is that the intensity is only going to increase.

My guess is that as the relative importance of the climate change issues and rising economies increases, we're going to get a couple periods of complete structural failure in the global financial system, and this is going to play crack-the-whip with various local and national financial systems. They won't be bubbles in the "housing bubble" sense but they'll be related, in that one set of factions will want a lasting change to the structural rules that provides them with relative benefit and another set of factions will be willing to break the system rather than allow it. It's not all that obvious who is going to be in a position to pick up the pieces, either.

I do not currently think it very likely we're going to avoid this, or that we're going to recover from it quickly if at all.

62:

the double dip that this government is about to cause will also give an unwinding in the uk housing market.

It will be very nasty especially as the government has structured housing benefits so that people on HB must live in the poorest 30% of the current housing stock. For example it means that if you live in edinburgh you get a choice of muirhouse, muirhouse or pennywell if your lucky. This will kick the lowest rungs from the buy to let market. Follow that up with falling house prices and if your in the buy to let market the value of your mortgage will be more than property value. you cant sell the place and you cant get tenants! the very thing that gear up the price increases will down be on the backs of the fall in prices.

Also with the increase in people living in rented accommodation their may well be a move to increase the rights of tenants to a more european level

house prices still need to fall about 25% to get back to the top of the long term average of earnings to salaries. Of course in a housing crash it could fall by 50% which as it happens is what the government asked banks to use as part of their stress tests

Oh and I know people go on about how we are really short of housing stock, I find peoples space requirements are remarkably fiscally linked, when families have to live in 2 rooms they do.

63:

Much as I sympathise with the plight of students with regards to overpriced education, I don't really see how it can be a bubble, rather than just inefficiency and hyperinflation. The same goes for healthcare.

For a real bubble to occur, you need to turn whatever it is you're bubbling into a freely tradeable comodity. Education is non-fungible (i.e. you cannot sell your education to someone else, at least not directly). Student loans however are fungible (you can sell/buy loans). A bubble based on student loans would be too much like the the subprime con however for it to work anytime in the next five to ten years.

Treasury bonds should be safe by their very nature. Barring the risk of government bankruptcy, treasry bonds offer a stable but low-ish ROI, but are very hard to game.

For a bubble really to take off, you need a number of things:

1) It needs to look good, something that captivates people's imagination, and convinces them to part with their money

2) It needs to be tradeable

3) It needs to be risky, and it needs to be somewhat arcane so the risk can be hidden. This is so it doesn't become immediately obvious that the emperor really has no clothes until there's so much money riding on it that it's in everyone's best interest to keep pretending until the whole thing bursts.

4) It also helps if it is something that seems like a good idea in general.

All of these were true for .com, Enron, and the subprime bubbles.

Based on this (disclaimer: I work in the energy sector), and from what I currently see, my money is on renewable energy and green certificates markets (not carbon, the carbon markets are struggling).

1) Its technology, and it's sexy.

2) Green certificates are tradeable in and across many countries.

3) It's risky - current green investments are for the most part only able to offer a return due to government-regulated support mechanisms (mandated feed-in tariffs or market-based green certificate schemes).

4) Many governments (in the EU and the US in particular) are really pushing renewables atm. This is actually a good idea, since we've had the tech since the seventies, and people are starting to realise that our fossil fuel supply sources are bound to run out eventually. And not being completely energy dependent on importing fossil fuels from some of the most politically unstable regions of the globe may actually just be a good idea.

Decades of inaction in this regard means there's a lot of catching up to do, and tremendous potential for real growth. Read: money is flowing in, and gubmint are actually supporting it and probably won't look too closely at how it's done as long as these new wind farms/biomass plant/tidal turbines and of course the ubiquitous PV roof panels are going up and we all feel good about ourselves.

Until someone comes up with the bill for locking ourselves into 20-year contracts with massive premiums which looked good at the time, when it was 1% of total power plant, but 30 years down the line, when it approaches 50%, it starts looking a wee bit expensive and who's actually going to buy the damn things?

Counterargument to a green energy bubble: energy industry majors are notoriously conservative and slow, particularly post-Enron. In both cases, their typical time horizon for investments is 20-40 years. The green energy revolution will only turn into a real bubble of .com/subprime proportions once you start seeing non-traditional investors invest massively in the sector in the hope of short term gains. I haven't seen that yet (which doesn't mean that it's not going on).

64:

First, my apologies for the multiple postings. My excuse is that I realized a while back that what appear to be science or technological issues are really political, and to a lesser extent, economic issues. Yeah, I'm kinda bitter about that one, as are most of the space cadets when they finally figure it out :-( But that doesn't stop me from trying to learn more about what's really going on (it also explains why irrational optimism can be selected for as a trait :-)). Anyway, here's a better link for some of the Newberry stuff. I've been especially impressed since he called it back in '06 or thereabouts, that whoever was elected president from either party would be, essentially, "Bush Lite".

Back to the more classic speculation as to what will be the next (or one of the next over the upcoming fifty or so years) bubble: I once again nominate cryonics. There's going to be a lot of people who will be near the end of the road, biologically speaking, and there's going to be a great deal of anxiety as classical economic engines and economic supply chains break down, as they start to "thrash", to borrow a great word from John Barnes and his "Century Next Door" series (specifically, Kaleidoscope Century.) So if you're in the upper crust, why not park your safe upper-class investments somewhere while you wait it out? Somebody like Bill Gates can afford the full immersion helium bath and also have the reasonable expectation that they can remain safely frozen for a century so. So maybe you with your mere millions (or even just hundreds of thousands) can make it to the other side even if all you can afford is just the liquid nitrogen option (note that cryogenics - In Space is a lot easier to do, once all the other little mundane details get sorted out.)

Now, I want to be very clear on this - I'm not one of those nuts who think the game is worth the candle; I merely offer it up as a speculative bubble (I also really liked Simak's "Why Call Them Back From Heaven".) Otoh, if somebody could afford the helium treatment, and if they could keep the cryostats running long enough, and if resuscitation ever becomes medically feasible, well, it's possible that somebody frozen in this century could be awoken sometime during, say, the 28th, when such astounding feats of medical legerdemain become the rule rather than the exception. That's my honest belief, and if you sold it to the masses as such, you could, broadly speaking, say you were doing so honestly. But the rub here is that's for the Billionaire's plan. If you're just a head dunked in liquid nitrogen, well, say so long to your money, sucker.

65:

I am getting the impression from my reading that the accounting regulations imposed by Sarbanes-Oxley in the US has drastically reduced the attractiveness of the traditional IPO as an exit strategy for founders of start-ups: this might even be retarding the growth of a second web/mobile related market bubble.

That's certainly a part of it, but there are some other factors at play in the tech and mobile sectors.

1) Cost of business - simply put you don't need anything like the cash you used to to start a business. This is fairly bad news for the traditional VC community because it's actually feasible to start a company with Seed Capital from an Angel and take it to an acquisition without needing mega-millions like the late 90s.

2) Tech/Market Flux - it's highly unlikely, at the moment, that too many 'fresh' start ups will go into business with a business plan that says "EXIT: IPO stage left" - they'd get laughed out of any room by an investor and it's not needed. While Microsoft, Google, Apple, Nokia, Oracle, Salesforce, IBM and a few others are trying to work out what the best plays are in mobile/web, they're buying anything that looks like a good bet - even if that means killing it.

3) Second generation of entrepreneurs who've had a sale and want another. There's a second generation of 40ish survivors of the original web boom who may have IPO'd, or, more likely, sold to a (see list above) who are on business 2 though n... who are looking for another sale so they can move onto Business 3, or get some stability into their finances while they put their kids through college. Johanthon Spasatso of Piknik is a great example where he sold one company to Google, then used that money to build up another which, interestingly, he also sold to Google. He's now settling into a management role there and doing mundane stuff like fixing his credit score and getting ready for his kids to go to university.

So, whatever the next bubble is going to be, if it's VC driven it will be things which are capital intensive and appear to have strong IP protection built in. I think we'll see a steady stream of software startup winners, but there will be far fewer IPOs.

66:

@57:

What work is socially determined; there's currently a five-cornered argument going on between rising economies trying to generate material prosperity for the whole of their populations, established sectors of advanced economies, innovative sectors of advanced economies, the profit-maximizer faction various distributed, and the folks getting panicked about anthropogenic environmental change.

Well, yeah. That is the big story of the 21st century. If you're an optimist, when we come out on the other side of this next 100 years, what you'll see is a world where most live like Western Europeans and Americans did sometime in the late twentieth, modulo some stuff like automobiles. But by, say, 2150, literacy will approach 100%, everyone will have enough food, water, and medical services, air conditioning will be by far the rule instead of the exception (maybe solar powered air conditiong units :-), etc. After all that stuff is taken care of, then you can start to think about luxuries like manned missions to Mars.

67:

Few comments on Gold: Looks and smells like a bubble to me. When you start getting adverts on the cable news channel with various public figures telling you that you can't lose. Then the likelihood is you can't win.

The interesting thing about a Gold Bubble is that the people who are buying into it, are also (BIG generalisation) the kinds who vote a certain way and who probably agree with demands for a return to the Gold Standard.

Either way, they're in trouble.

68:

@61:

All of these were true for .com, Enron, and the subprime bubbles.

By your reckoning, this was not true of the subprime bubble. Not unless you're conflating the subprime and financial bubbles.

69:

Ok, having read the comment thread thus far, based on what I've read about bubbles and current economic activity in Harpers and Mother Jones and Democracy Now!, I think that commenters, 28, 29, 30, and 52 have the best points.

I also think that it's interesting folks are choosing China as a bubble in itself, because although we have a global economy, based on what I've read, I think some bubbles have a definite "where" to them, not just in terms of market sectors but in terms of national economies. We don't just see explosive deflations in particular sectors (like real estate), we see specific kinds of deflations in specific kinds of national economies, deflations whose characteristics are affected by regulations (or lack thereof) in their host countries.

Overall, based on observing the US and so-called "developing countries" (aka places that former political colonizers still colonize economically, stealing their natural resources and enslaving their people in all but name), I expect to see bubbles in human services sectors that should not be attached to the profit motive, and that in many cases governments should be providing gratis without corporate interference.

Potential bubbles (not perhaps the size of the real estate one, but still) that I see and why (as a non-economist who just reads stuff):

1. Government debt
Many governments owe a lot of money to private interests as well as to other countries. This is true of so-called "first world" nations as well as "third world" nations, except that the entities to which the money is owed are different and the repayment terms are different. Looks not just at the UK, but Greece, the US, many African countries, and I'll call attentuon to Jamaica below. Rich countries tend to get more grace time to pay their loans than poorer ones, and are generally treated more nicely by their debtors, just like rich and poor people. Businesses can make a lot of money off government debt -- and an interesting side effect of this is that it can stifle investment in individual businesses -- see this episode of NPR's Planet Money for more:
http://www.npr.org/blogs/money/2010/06/29/128195395/the-tuesday-podcast-the-billionaire-and-the-tire-repairman

Can't recommend that show more, by the way. Lost track of them in April after a bunch of deadlines exploded, but I intend to actually re-start listening to and reading them now.

2. Government contracting (in the US and UK anyway, not sure about whether public/private partnerships, aka big stupid scams, are big anywhere else)
For some reason, dumb government officials try to save money during cut times by outsourcing; I do not understand the logic behind this given that they usually pay more, but it probably has something to do with who is calling for cuts and who the vendors are they are they are in bed with. (Readers of this blog know that rather well I imagine, given treatment of the topic in the Laundry novels). You see a lot of this in the US especially in the education area, with private profit-oriented charter schools and test prep companies. This is separate from the boom in for-profit vocational schools and for-profit equivalents to community colleges.

3. "Education" - aka false hopes for people ill-served by poorly funded public school (in the American sense) systems
Specifically for-profit vocational schools and online higher education (which I personally feel exploit their students). At least in the US. Not sure if the UK has an equivalent to ITT Tech and Phoenix and their ilk.

4. "Security" - aka shackles and enslaved labor
At least in the US, corrections suppliers are thriving as well as military contractors; this is of course partially because they can sell their products and services (including personnel) for use in military as well as civilian prisons. Prison labor also makes contractors who market the services of underpaid or unpaid prisoners very rich. We may or may not see clinical trials as part of this trend; I'm not sure if IRBs have successfully clamped down on the practice, although realistically US-based pharmaceutical companies do seem to have outsourced dangerous and sometimes fatal clinical trials without sufficient ethical oversight to so-called "developing nations", especially India in the case of contraceptive trials, and various countries in Sub-Saharan Africa in the case of HIV treatments, to give two examples, supposedly in a philanthrophic spirit. Supposedly. Right.
Getting back on the subject, if you look at the growing number of US contractors in the middle east, with the supposed withdrawal, you'll see a lot more mercenaries and military services contractors (not really any comparable growth in the physical durables aspect I suspect).


I expect a green bubble less than I expect a water bubble, with events like the Cochabamba Water Wars spreading outside the "developing" world:
http://en.wikipedia.org/wiki/2000_Cochabamba_protests

A very interesting book relevant to a number of these topics: "The Shock Doctrine: The Rise of Disaster Capitalism"
http://www.naomiklein.org/shock-doctrine

Side note: I also wonder to what extent the free functioning of large monopolistic businesses will have on various bubbles currently in process. In food just as in publishing, this is the era of the megalodons.

70:

The Chinese economy is not a bubble.

Why? Because it's backed up by reality. A bubble is not marked by the rise of prices, it's marked by the the lack of underlying values or markets. In China, that's not yet the problem. People are moving into the cities by the millions and it's their demand that's driving up the prices pretty quickly. So long as people keep moving in and don't start moving out, they will keep rising.

Sure, at some point prices are likely to detach from reality, but US price development is the wrong yardstick. Compared to China, the USA was in a state of almost perfect economic stagnation and sclerotic demographics at the time when the recent bubbles inflated and burst.

71:

You, along with all the commentators I've read here (and I may have missed something) are I think missing an understanding of what money is and how it functions.

We can never run out of money (we can always create more), we can only run out of real things that we count as wealth. The "bubbles" can only ever affect money, they never ever affect the underlying reality of the things and people we have to create or destroy wealth with.

The financial disaster of recent years hasn't affected the total available wealth of humanity except to the lamentable extent that we are throwing away thinking creative human beings. The monetary situation is entirely irrelevant except insofar as our hallucinatory beliefs about it cause us to waste and destroy human capital. All we really have to do is to wake up from these hallucinations and begin to pay attention to physical reality.

If you wish to wake up then I recommend you had on over to http://bilbo.economicoutlook.net/blog/ and read the achived articles there carefully.

72:

@Scentofviolets - I'm not entirely sure what you're saying here, sorry.

73:

@72:

I was actually referring to post #63. The poster claims that an education bubble isn't possible because "education isn't fungible". Well, by that reasoning, neither is real estate. And yet, we have stories like this:

Nelnet will pay $55-million to settle its share of a whistle-blower lawsuit that accuses it and several other lenders of defrauding taxpayers of more than a billion dollars in student-loan subsidies.

So, just like housing isn't something you can just put in your pocket and go but you can still commoditize mortgages education as an article isn't directly transferable, but loans taken out to finance it are.

74:

Beanie babies, WoW characters, and EVE playtime. Mark my words.

75:

My next bet for bubble is funeral services. Babyboomers starts dying. Supply does not meet demand. Prices go up. New funeral parlours get set up. Everybody is buried. Bubble bursts. Lot of crying and whining ensues. :P

76:

Today's article at http://www.debtdeflation.com/blogs/ makes a strong argument that the next bubble to collapse will be the banking bubble.

77:

Current bubbles in play: Gas & Oil. Part of the reason for Oil's original bubble was that the standard ways to ship money around (currency speculation) was actually becoming risky, so everyone started buying oil. Side effect: bubble. Gold may be the same, but I suspect it's just people figuring they can keep it out of bankers' hands by hoarding gold.

Housing is still a bubble. I asked a lawn guy in the neighborhood to come give me a price on doing my yard. He called a few days later, my wife answered. Through pidgin English they try to talk. He thinks the question is that we want to sell the house - and he's fine with that. How much do we want? Turns out he flips them. Isn't that what got the bubble started? Another neighbor basically buys homes and holds them for <30 days, during which point he tries to find a buyer who's willing to put money into it and resell it. Housing is still a bubble, and the various tax incentives have kept it from hitting bottom - so far.

78:
Lots of people can recognize that the market is not performing correctly (shoot, I knew this, having recently bought a house); but selling short and playing safe only encourages the masses to invest elsewhere where the props freewill with abandon, causing the prudent player to go broke.

The problem is not calling a bubble a bubble, iow, it is in knowing when to get out.

Okay, let me expand on my previous observation a bit. There are three stages in the lifespan of a bubble.

Stage 1 is when unrealistic expectations generate investment beyond the ability of the market to satisfy. The bubble may be recognised by some people at this stage, but for whatever reason, most people don't see it. It follows that there is no real evidence for it being a bubble, since nobody can construct a convincing proof.

Stage 2 is when a significant number of people have realised that a bubble is in progress, but the momentum of the market is too great to stop. Smart investors don't get out here - they keep going, riding the wave upwards and hoping to pull out before it crashes. There is no rationality in this market; it grows because it has been growing, not because people think it will deliver. They know it can't, and are simply trying to grab money from people who don't pull out in time. Poker players would mumble something about raising on a busted flush.

Stage 3 is when somebody blinks. Everybody pulls out in a hurry. The bubble 'bursts'.

So, a question of the form "What is the next (stage 1) bubble?" is not something you can really answer. Bubbles at that stage cannot be reliably identified.

But what several people have attempted to answer is instead "What is the current (stage 2) bubble?", and if there is one, it might be possible to answer that.

79:

I think that IF there's a bubble right now (and I'm not convinced there is: it may well be that we've got more deflation or stagflation to come rather than explosive growth), it's probably in mobile devices/the software for them. That's where I'm currently seeing unrealistic expectations, lots of enthusiasm, participation from a large number of small businesses/individuals.

80:

I agree that there is a lot of money sloshing around and looking for a home, but if you set to one side the local bubbles caused by the growth of 'World Capital 'cities - like London with its weird property values and city state status - the 'next ' bubble is on-going and is really just a continuation of the last financial bubble. It could well be that we ain't seen nothing yet.

This following is old news from a year ago but the situation is on-going and there's no way of anticipating its full effect on the worlds markets ...

" Head Of China Sovereign Wealth Fund Openly Admits Asset Bubble Addressed By Creation Of More Bubbles " ... 'In a phenomenal demonstration of frankness and true economic assessment, the head of the China Investment Council, Lou Jiwei, who controls China's $298 billion sovereign wealth fund admits the ponzi nature of todays markets '

http://www.zerohedge.com/article/head-china-sovereign-wealth-fund-openly-admits-asset-bubble-addressed-creation-more-bubbles

81:

I'm going to take a bubble as the next major thing to cause an economic crash, and I'm guessing it will be a oil/resource spike around 2020.

While the West's oil consumption over the next few years may be flat or declining due to increased efficiencies and/or economic stagnation for China it's a different story.

If China maintains an average of an 8 percent growth rate over the next 10 years, its economy will double in size, which means it will add a Japan to the world economy. I think it can now do it without relying on the West for ever increasing exports as its economy is large enough internally to drive its growth.

This massive increase in resource consumption accompanied by the increased requirements of India and other 3rd world countries will collide with peaking oil demand to cause a massive spike in oil prices, which will drive the world into recession.

The wild card in when this will occur will be Iraq and how quickly it ramps up its oil production. If Iraq can't get its shit together, then this will happen sooner. If the country is successful at stabilizing itself and increasing its production then it will be later.

82:

I don't think China is an economic bubble, but it does appear to be an ecological bubble nonetheless. Most first world countries are, BTW, but China's got some particularly bad problems: too many people, questionable access to the fundamentals (water, food, power), an overpowering dream of increasing standard of living, and a somewhat corrupt regulatory system.

Now, unlike the US, I think more of the Chinese technocrats understand the scope of the problem, and they're in a position to at least attempt to do something about it. However, the idea of millions of Chinese running out of water and trying to find it is something that might spark a border war somewhere in Central Asia. Especially if the Himalayan glaciers disappear.

As for financial bubbles, I'm personally strongly hoping that the current trend in punditry is a bubble. I mean, how long can we go on paying for (insert name of parasitic talking head here)? They're vastly overpriced, it's not clear who they're bringing in money for except themselves, they're risky, and they keep trying to play by a different set of rules. It would be nice to see the whole industry implode. Messily.

83:

The next bubble is BRAINS! Or more accurately, knowledge based jobs.

It won't be seen as a bubble burst, though.

We're already seeing the beginning of the problem with automation of tasks and offshore outsourcing of low-level technical jobs. The trend is continuing; large companies are now employing teams of developers in India (1/3rd of my team is based in Bangalore). Even some management functions are now being driven from there.

Relatively well paid white collar workers will find themselves unemployable or working for less money. This will have inevitable consequences to the economies of affected countries.

The leak has already started, but there's enough pressure to keep the bubble inflating. Will it burst? I don't think so; we'll just see the bubble deflate slowly over time; unemployment rise, GDP fall.

84:

I'm going to throw my hat in for non-traditional banks. The banking sector (at least in the US) is ripe for a deep retrenchment. We're seeing signs of new types of intermediaries dong bank functions, from new, low-cost banks to online payment systems like PayPal. This is bubbling right now and has had a few false starts, but I suspect it will become a bubble within a decade.

I'm also going to plump for the Yuan. China has been holding down the exchange rate wrt the USD countering the obvious direction the exchange rates should move, but I suspect that we will see large cracks appear as the USD weakens and the global currencies and power realign. Currently international bankers do not believe that the USD will lose it's preeminent status and that China will be forced to continue to buy and hold US treasuries. A reversal in that perception could start the bubble.

On the commodities front, I'm wondering about a methane bubble. It it the best fossil fuel we have to reduce carbon emissions and we could be looking at a lot of demand for new reserves and production if coal/oil use is decreased. Currently the forecasts are quite negative for gas, which makes me suspect that a reversal, if it occurs, will take the market by surprise causing a new bubble.

85:

The next bubble is BRAINS? Sounds like Zombie economics to me...

86:

As few other people have noted, I would consider bubbles to be situations where the valuation of some sector is increasing beyond inflation and generally out of whack with the underlying value being created in that sector...

I think gold is probably a good candidate. The price has been run up but except for jewelry and a few industrial uses, the value is almost entirely based on what other people are willing to pay.

I sympathize with the notion that intellectual property could be a bubble, in the sense that patents and copyright are propped up entirely by arbitrary government dictate rather than necessarily embodying productive value. On the other hand, a collapse of the IP regime (due to actual legal change, or simply widespread acknowledgment that enforcement is more expensive than ignoring infringement) is unlikely to have the same kind of far-reaching financial reverberations that other sorts of bubbles -- I don't think there is the same kind of money there.

Oil could certainly have another runup in prices -- there are many, many, many scenarios where investors could be spooked into speculation on petroleum due to geopolitical events. I also believe the underlying logic of peak oil is valid, but while it suggests a gradual decline in production (and gradual increase in prices), human nature being what it is suggests what will actually happen is a series of panics, price spikes and collapses.

I wish there would be a green energy bubble, as the sector could use a .com style feeding frenzy to give it momentum. However, green energy has a variety of real and perceived limitations of technology that prevent it from breaking out. If we figure out a way to make it affordable for every homeowner to put solar panels on their roof at significantly less than the current cost (10%-20% of the entire property), it could open up the kind of huge market that could spark an investment frenzy.

87:

In the United States, at any rate, bubble-like characteristics can be seen in higher education (where the price of tuition has climbed past $50K at many private universities, funded by easy student loans that no longer look like such a good deal given the risk of unemployment), and, perhaps, in entertainment. And given that the Obama health care reforms don't actually abolish private comprehensive health insurance, but seek to compel tens of millions of additional customers to buy it, I can see the health industry experiencing a bubble over the next decade or two.

88:

Drastic bubbles didn't happen under Soviet communism - just a regular seasonal growth and retraction and a steady climb. A regulated market is not socialism, but there's no reason to think that it can't mimic some of the effects. Obama stated early on his intention to 'smooth out the peaks and valleys' in the market. We'll see how much of that the Democrats can accomplish.

A bubble the size of the tech stock or real estate bubbles requires the participation of the general population. Even under normal circumstances I think it would be ten years before they're ready for another go at roulette, if that soon. I doubt the NYSE will see much of a rise until the middle of the decade. Hopefully by then regulations will do their trick and there will be enough firewalls in the system to confine the effects of speculative bubbles to the people that can afford the risk.

89:

There's a whole medley of potential financial palavers that we might blunder into, but Charlie asked about bubbles. So, for what tradeable commodity will prices rise because speculators are buying with the expectation that prices rise.

My vote goes to oil. We're in a global recession and crude is still $70-80 per barrel. We've got an inelastic supply - it takes multiple years for new wells and refineries to come on stream, no matter what the price. We've got a fairly inelastic demand - people can drive a little less, but they've still got to get to work and will buy no matter what the price. So once the world economy gets back onto its feet, investors will have a realistic expectation that there'll be an unrealistic market, with prices sky-high, hence we're perfectly primed for prices to do just that.

90:

I keep looking at the gold bugs and thinking about seawater... The current price for gold is about 40 dollars US per gramme. How much would it cost to extract a gramme of gold from seawater? How low could the price per gramme go if it was being extracted on an industrial scale by multiple operators?

Two further thoughts from that starting speculation --

A) are some smart folks already doing it with gene-engineered oysters or trick ion-exchange resin baths and not telling anyone because they don't want the gold price to collapse and

B) are some smart folks secretly marketing such a scheme to assorted Vultures, possibly fuelled by snake-oil and glossy brochures?

Yes, I know about the Clarke story, thank you very much and I am aware that any proposed gold-extraction system can probably be tweaked to extract any other valuable elemental resource you care to name, but gold has a lustre that lends itself to bubbles and overenthusiastic price inflation.

91:

Green energy? The pitch is easy to squeeze into an elevator pitch, governments are willing to shell out for hefty subsidies, and there are several looming and well-known problems -- energy security and global warming -- that it just might solve.

http://blogs.wsj.com/informedreader/2008/01/15/as-one-economic-bubble-bursts-another-takes-hold/

92:

I'll toss my speculative hat into the ring.

Geriatrics and elder care related industries. The NorAm boomers are getting older and many more are going to require more medical interventions and assisted-living in the next ten-fifteen years. In many parts of NorAm, there is a shortage of appropriate accommodation. Money to be made building more seniors complexes! Geriatric care as the new boom industry!

So far, David S. Foote's* demographic based predictions have been running fairly accurately, even if his original prediction for the Great Recession initially appeared to be off by 18 months.

*Demographer at University of Toronto. The original book was "Boom, Bust & Echo", with several revisions extending out his demographically-based predictions out past 2020. Best seller in Canada.

Other than that, African infrastructure development and after that, industrial development?

93:

I agree that bubbles are an integral part of unregulated capitalism, but I personally was fond of the New Deal legislation (in the US) that made it hard for the economy to switch to bubble mode. Those controls were systematically dismantled under Reagan, but I think there's a lot to be said for slow steady growth, over wild, unpredictable speculative swings.

Not on the radar, but one that would have all sorts of interesting implications: people have fun harnessing "the wisdom of crowds" through various market devices, such as the Iowa Election Market. If the Bright Idea Futures Market blew a bubble, that would be...interesting. Since bookies are now taking bets on the dates of scientific discoveries, there actually is money flowing in that could cause trouble.

94:

are some smart folks secretly marketing such a scheme to assorted Vultures, possibly fuelled by snake-oil and glossy brochures?

Funny you should say that.

I had an idea for a scheme breeding macro algae to extract gold from seawater back in the late 1980's when both biotech and gold was in a boom. It seemed the perfect marriage and was backed by enough academic papers to seem legitimate. A few years later I read about a very similar scheme in the Economist. Since I haven't heard of anything since, my guess the idea failed, like drilling for oil under the rockies...

The beauty of the scheme is that you tell the suck..., er.. investors that, sorry, the science didn't pan out.

95:

The next bubble? Tulips :-)

96:

Other comments have pointed to the fact that much of the recent credit bubble is still bulging dangerously; residential property and commercial property being the largest of the known ones.


Britain's new policy of squeezing down housing benefit (subsidies paid to landlords) will take about a year to puncture the residential housing bubble at the bottom. But, as the housing market is a continuum and strongly cohesive, a rapid deflation at one end will have a powerful and painful effect at all levels. This government will, of course, ensure that the downward pressure and the worst effects will be applied to the vulnerable and the very poorest.


Where this gets interesting for bubble-watchers is that this will create a huge spike in demand for housing for the desperate and the (not-quite-but-nearly) destitute.

I predict a boom in Slums.


Long-term, slums and shanty-townable hillsides (or rather, leafy suburbs where large houses and McMansions can be sub-sub-subdivided while shanties are erected in their substantial gardens) are a promising investment: the hollowing-out of the middle class and the collapse in demand for low-skilled labour make their existence inevitable in a country with a 'laissez-faire' political consensus between ruling parties that seem increasingly like the same party with different PR teams.


Getting in at the bottom of the market will be difficult - a suburban proto-slum is still ridiculously overpriced, even if a skilful investor crams in forty people on the plot to pay him three-quarters of their subsistence benefits and income - but it's worth pointing out that the banks already own much of it through equity-release schemes that are paying for nursing care for the older homeowners. Luckily the surveillance-camera and database boom has left us with the infrastructure to clamp down on political agitators and RFID collars can constrain the movements of (say) contagious typhus and TB patients for the duration of their care in the community programme.

That, too, might be a bubble worth a bit of vigorous pumping: low-end healthcare for slum dwellers.

97:

More seriously, while it might be delayed long enough to be the next bubble but one, I expect life-extension technologies to be a major bubble, especially if a number of different techniques leave the laboratory at about the same time. Investors will perceive these technologies to be highly marketable; they'll want to try to erode existing medical and biotech regulatory controls for faster access to the market and for less prevention of price-fixing and gouging. They'll assume that vendors will be able to charge all the market will bear. So the stocks of those companies will be highly desirable, and the scramble to buy them will cause something very like the dotcom bubble, where companies were created whose business plan was basically, "include dotcom in our mission statement". The bubble then bursts when enough of these companies tank.

98:

OK, judging by the comments on an oil 'bubble' I don't think enough are getting it and the consequences of my post @3, so I'll expand.

If you take a look at the production side of oil, the prospects, and the investment that was curtailed following the financial fraud based recession; you find a declining level of production over the next few years. eg we've been on a plateau for about 5-7 years, now its heading down.

About the only thing that can delay that is some dramatic production spike from Iraq, but personally I wouldn't hold out too much hope of that. Too many ducks to have to get in a row.

So what happens?

Prices spike, like they did in 2007, which leads to a global economic recession (like 2008) where those that have a better economic utilisation of oil (China) can outbid those that don't (US). Prices fall with the forced overall fall in demand, economies recover somewhat, demand rises - rinse and repeat.

Each go around transfers a greater percentage of oil production to the east over the west.

Only its worse than that. There's this thing called net exports - the only oil to buy is the oil that's not used internal to the producing country. And domestic demand in those countries is increasing. Net effect is an even faster fall off in exportable oil than is caused by production falls alone.

Overall, this is a game changer. Whereas before you could expect these bubbles to come around regularly, now your ability to grow in some area is constrained by the requirement for someone else to fall. And if they fall there tends to be a knock on effect that hits nascent industries hardest.

So value returns to the nonbubble, those areas which are actually the most resilient and efficient - China/India and the industries of keeping people alive. What you are seeing Charlie is a realisation of those with money that there really aren't any great plays to be seen, where risks abound and where people still look to play the new game with the old game's rules. They will eventually get over this and realise the reality. Then all hell will let lose.

99:

Hmm, thinking about commenter 83:

Relatively well paid white collar workers will find themselves unemployable or working for less money. This will have inevitable consequences to the economies of affected countries

which is true, and am being reminded of another episode of Planet Money . . .

Fault Lines
"When economic inequality is rising within a country, it's common for leaders to offer a fiscal Band-Aid that makes people feel richer — even if they aren't.

That's what happened in the U.S. over the past few decades, Raghu Rajan argues in his new book, Fault Lines. The Band-Aid, in our case, was the easy credit that ultimately led to the financial crisis."

http://www.npr.org/blogs/money/2010/06/24/128089847/deep-read-let-them-eat-credit

So here's another bubble (if that's even the right word) for you, one related to mortgages: credit. I suppose that falls under banking, as it was mentioned above?

100:

I think it's improbable we can identify we're in a bubble until it bursts. In fact, I think in the context we're talking a bubble is only defined after its burst.

And bubble implies 3D. Most bubbles seem to be represented as graphs sans spheres or even circles.

I therefore predict the bursting of the meta-bubble. No more bubbles, same as we no longer crash or paradigm shift. A new phrase will arise to describe pooh hitting the rotary oscillator.


101:

If you want to understand what exactly happened to the US economy over the last 20 years I'd recommend this article:

http://www.rollingstone.com/politics/news/12697/64796

Matt Taibbi has done some excellent coverage of the financial meltdown over the past year. His focus is the American financial sector, but the practices used here have been exported globally. If he's accurate (and his in-depth, long term investigation tends to bear that out) then there's another bubble coming, and on a much shorter interval than the last.

I tried reading a few of the comments, and there sure are a lot of intelligent people out there who seem to be direly uninformed. Unfortunately, that's what our governments and the plutocrats in the financial sector are counting on. This is some dreadfully boring bullshit to wade through and most people don't have the attention span for a 10 minute TV news story, much less what is required to read the mountain of investigative journalism required to fully grasp what is going on and how it happened. Speaking of:
http://en.wikipedia.org/wiki/Nomi_Prins

I'm doubtful of any change in American politics. I doubt that politicians could change much anyhow. They're no longer trusted, and the valid rage of the American middle class has been channeled into some of the most misdirected political and ideological movements in memory. There is no (large) political movement in America that can turn this around. All I see here are the crypto-racist/homophobe Randians under the Tea Party banner, and a bunch of smug "liberals"(in the American sense) that buy into the greenwashed consumer capitalism cure for over-consumption hook, line and sinker (chocolate laxatives, anyone?). We have no solutions here. America is over, and if the global economy is to right itself before peak oil it's up to the rest of the world to figure it out.

Sorry to go off on a screed about American politics/culture, but I'm pretty sure our stubborn entitlement and willful ignorance precipitated this disaster.

102:

We will soon reach the Shoe Event Horizon.

Joking aside, I'm not expecting another bubble anytime soon. After the Dot-Bomb and the Real Estate bubble, I suspect that even the dullest financial speculator has some idea of what to look out for and when to get out, (possibly excepting the people who buy gold, IMHO they're substantially dumber than the usual run of speculators, and will need one more horrific lesson before they figure it out.)

However, as someone above noted, the real estate bubble has not fully unwound yet. I'll add to that the notion that we haven't really seen any fallout from commercial real estate, and at least in the US, regulation still favors the banksters and con men. Note further the refusal of most governments to go further into debt, even to finance some kind of infrastructure/jobs program, which is contrary to economic best practice, and government refusal (at least in the US) to tax the higher income brackets. To this we can add possible deflation, uncertain unemployment numbers, etc.

In other words, all the elements necessary for a complete disaster are there, it's just a question of which domino falls first, and I'll leave that prediction to wiser heads than myself. But it won't be a bubble.

103:

Speaking of IS business:
- Green business bubble
- Social business bubble
- Cloud bubble (I love this one, wich is a replay of ASP, SAAS....)

Well, any time a good idea can be twisted to make easy money thanks to a good marketing campaign

104:

IMHO, Oil Peak is as real as Anthropogenic Global Warming.

105:

Important distinction: A bubble like .com, that didn't really hurt many ordinary people and did leave us with a whole lot of infrastructure we used later, and a bubble like property...

106:

I agree.

(They're both real and deadly serious threats.)

((I assume that's not what you meant ...))

107:

I'm sure we all know, or can search out, what Terry Pratchett said that "IMHO" actually meant! ;-)

IMO, and based on limited understanding:-
1) AGW may or may not be real, but as presently stated is based on some very bad science and statistics. For example, try finding the Medievil warm period and the "Little Ice Age" in the AGW graphs. Now try comparing the time of the switch from the use of derived dendritic temperature (hence in open country) to city centre thermometric temperature with where the "hockey stick" kicks up. Now try comparing the temperature against time charts for Mars and Earth.

2) "Peak Oil" happened in the 1930s, and the 1960s, and the 1970s, and the 1980s, and the early 2000s. Oh, wait, there's something not quite right there! Yes, there will be a real "Peak Oil" sometime, but the people who keep saying it was last year don't actually seem to know anything about oil exploration and extraction technologies, and until we stop finding more oil, and improving extraction technologies, we won't reach it.

108:

Bubbles require a catalyst in two forms: a, desire/need/vision that people have or buy into and b, an ability to deliver it. The dot com bubble came about by wider access to cheaper computers/ computing power and the desire of people to want what it offered and use it in gerenal for talking to each other and/or shopping (therefore making money for the people driving it). Otherwise it would just have been a 'bunch of hippies' in their ivory towers postulating about geeky scifi like stuff again can any one say IRC (which was cool by the way).

The next big one is going to need an andvancement of some sort e.g. Biotech, cheaper more powerful fuel sources, more effective ways of destroying ourselves (depending on your cynicism level) or something I am too thick to think of and we the general public are going to 'need' it for our lives to be complete e.g. mobile phones - how did I manage to have a life without one?, Sat Nav - I must have been forever lost for 20 to 30 years or online stores - how did I ever buy a book before 1996?

So are the prime drivers a leap frog in capability in a field, finding something to do with the advancement that countries, people or organisations want or do not understand so they believe they want/ need it and then the ability to keep it secret long enough to make some money off it and get out of there before everybody finds out it is a good idea and overloads it with bad immitations so ending it by popping the bubble.

Which get me back to the basic question what is the next one going to be - so this is a very long post to say - I HAVE NO IDEA but I would like a space ship please!

109:

Actually poshpaws its usually those who DO know about oil exploration that say there is a problem and that the peak was probably in the past. Those with the big picture view of the oil industry, oil industry execs, government officials, the US Army - the list gets longer every day and the rabbits needed to be pulled out of hats by those forecasting gains more extreme. How many new Saudi Arabias do we need to find now, is it 5 or 6 before 2030?

It's a classic red queen race, just to stand still gets harder and harder, faster and faster. Whether it's smaller and smaller fields that are more and more costly to exploit, whether it's the peak of discoveries that is 30 years in the past, or maybe the new exploitation technologies that provide less and less increment in extraction - it's all getting much harder, much faster.

Or maybe its that Mexico is crashing, Russia has peaked, Saudi Arabia has said 12Mbpd and no more, or Iraqi has promised the earth amongst a war zone.

The curve of probability has progressively moved up as time has gone on; and the recent crash in investment together with expected crash in development following new regulation means it's now over 50:50 that we've seen the peak already and are starting on the downward slope.

Maybe the next time oil spikes to $150+ people will accept its hard production boundaries, or maybe they will fool themselves its those pesky markets playing again?

And that's without getting to net oil exports, which demonstrably HAS already peaked.

http://mazamascience.com/OilExport/

110:

For really big bubbles, can I say hopefully not in our lifetime?

There's certainly a boom-bust cycle that anyone living over here in the UK will be familiar with the terminology of. I'm not sure if the last collapse was really a bubble bursting or just a really bad global bust part of the cycle all neatly lined up in order - those cycles of different lengths just line up from time to time and that's my guess on what happened here rather than a proper bubble. That said there was certainly enough fraudulent speculation going on that perhaps it was a bubble on top of a nicely lined up crisis waiting to happen anyway.

Whichever it was, bubbles tend to take a while to come to fruition. Given a lot of fingers have just been burnt on the last sure thing and the money we can't afford to lose we lost... that helps slow the next bubble down a bit because until this memory is buried and the pain a distant memory, enough of us won't get pulled in to make a bubble.

As for what it will be- dunno. Not predictable really so if you want a book like Rule 34 to be just after the next bubble bursts I'd be willing to believe just about anything. If we say 15-20 years before we have another one, how about anti-aging treatments? Cold Fusion? Solar power farms in the Sahara? You could make a story for each of those quite easily and plausibly I suspect.

111:

And does this include the known (but presently not exploited) Antarctic (and I think sub-oceanic Arctic) reserves? The issue with all the past predictions has been that they presumed:-
1) That there were no new fields to find.
2) That refinement of existing extraction technology had peaked.
3) That oil prices had peaked, so that smaller and harder to get to fields would remain uneconomic to exploit.
4) That there were no new breakthroughs in extraction technologies waiting to be discovered. A geologist friend of mine (no more info without their and Charlie's express permission) has written an unpublished near-future SF book where the McGuffin is a breakthrough technology that allows the extraction of something like 90% of the oil that present technologies can't extract from known fields.

So I'm not saying this prediction is actually wrong; just that the track record of these predictions suggests that they should always be considered to be on shoogly pegs.

112:

Bubbles aren't limited to economic investment cycles. All over we find strategies and beliefs that are working, and try to ride them forever.

An example is the talk-show host or politician who takes an extreme position and gets positive feedback. To continue getting that positive feedback, he finds a similar position and keeps going - even though each new position creates some new enemies as well as friends.

There *are* people who recognize an economic bubble - who plan on getting out at the top of the cycle. And some smarter people who plan on getting out before it peaks.

113:
Governments are spent, they have nothing left in the war chest and their populaces are demanding that they reign in spending... whether you like it or not.
Exactly what part of the populace is demanding that governments "reign in spending"?

Why would the population want a cut in government spending, which translates immediately into less money available to the population?

Au contraire, wherever the population has been demanding anything (Greece for example) they've been demanding that the government maintain its spending.

The only people asking for "austerity" are the clowns who got us into this mess and their shills. You can be pretty sure the "austerity" isn't going to apply to them.

114:

There's a required modifier to the term "Peak Oil" and that is the word "cheap". There used to be $10 oil, and that's priced in 2010 dollars. All gone, pumped and burned a long time back. Same for the 20 dollar oil and the 30 dollar oil. There's some 40 buck oil, maybe a few places in Saudi but there's not enough for everybody to get it at that price so everybody pays the going market rate which is an astronomical 80 bucks a barrel. At that price the drillers can afford to hire submersible drilling rigs that cost 100,000 dollars a day and go offshore in waters a mile deep and drill another three miles through the bedrock to find a reserve that, if extracted to the point where they're still making a profit on the deal, it would fuel the world's need for oil for a few days, maybe a week or so.

When oil reaches 200 bucks a barrel there will be lots more oil appear on the market, thick asphaltane oil that costs 150 bucks a barrel to recover using steam-water-CO2 injection, cracking etc. There's no cheap miracle SF tech that can get this residual oil to the surface, just pumps and pipes and they cost a lot to start with. All the cheap easy-to-get oil has been gotten, hence Peak Oil.

If you start talking about abiotic oil, I will laugh at you (I am already sniggering at your stance on AGW).

115:

Ah, that's why I keep seeing new funeral parlours in my little Parisian banlieue.

In at least one case replacing an estate agents.

Well spotted.

116:

It is my understanding that tar sands oil is down to $50-$70 a barrel right now, at least in Canada. There is a *lot* of oil there.
http://en.wikipedia.org/wiki/Athabasca_oil_sands

This is causing a lot of controversy, as tar sands oil comes with a greenhouse emissions premium and a lot of dirty water, and many Canadians lean environmentalist. The USA, the primary consumer of that oil, is not happy about it either.

In any case, around $150 a barrel (and possibly much cheaper with technical development (there is a lot of BS floating around)) synthetic oil is profitable, and the nuclear power and/or coal and/pr natural gas to make it reserves are still pretty large. $150 oil will not crash the Western economies, although it is a bit of a belt tightener. I doubt oil production will cut off so fast as to cause a collapse before synthetic/tar kicks in.
http://en.wikipedia.org/wiki/Fischer-Tropsch_process
http://en.wikipedia.org/wiki/Synthetic_fuel#Commercialization

In other words, I think oil can become more expensive, but I doubt it will become so expensive as to *force* us to switch away any time soon. This is troubling, as CO2 accumulation from fossil fuel use has "unfortunate side effects" and huge hysteresis, so we can easily screw ourselves over thoroughly and effectively irreversibly before said screwing over is obvious enough to generate political traction.[1] If we are lucky, greener technologies will become economically competitive as the cheap ground oil runs out.

If we are lucky.

[1] Yes, it is obvious now. It is not obvious enough to generate political traction.

117:

I thought it was clear that I was referring to peak production volume, and not considering cost. If you consider $10 barrels, even the easiest North Sea fields were marginal.

As for my argument about AGW, I didn't say that the planet wasn't warming. I said that some of the pro-AGW science and statistics were dodgy. If you think my reservations are ill-founded, perhaps you should explain why.

118:

@114:

When oil reaches 200 bucks a barrel there will be lots more oil appear on the market, thick asphaltane oil that costs 150 bucks a barrel to recover using steam-water-CO2 injection, cracking etc. There's no cheap miracle SF tech that can get this residual oil to the surface, just pumps and pipes and they cost a lot to start with. All the cheap easy-to-get oil has been gotten, hence Peak Oil.

How much energy does it cost to recover and process that oil? 120 bucks?

119:

I'd rather ask you what you think is wrong with the statistics and show your working for maximum points.

Except, this isn't the thread for that and it's likely to invoke the smashy hammer of moderation.

And if you start referring to those emails and invoke the use of words like "trick" I will be sniggering louder than Robert is.

120:

Anyway, is anybody finding it amusing in a thread about commodity bubbles somebody is talking about how much oil there is?

121:

Athabasca tarsands production are resource-limited by the water supplies available and these limits may tighten if the current loose restrictions on pollution are toughened up. This means the tarsands will be more expensive to produce as the operators are required to recycle and clean their process water rather than discharging it etc. and this could make them unprofitable in the short-term.

Making artificial oil from natural gas assumes NG prices will stay low but currently there is a gold rush on to produce and burn NG (which is still, remember fossil carbon) in place of oil and coal for heating, electricity generation, petrochemical production of plastics etc. (see Putin's cash-cow for details, and watch as the taps to eastern Europe are switched on and off again this winter). By the time synthetic oil is needed the price to the consumer may be the same as the cost of cracking the asphaltane oils left after all the lighter stuff has been pumped. As for coal, forget it -- like oil all the easy-to-get coal has been gotten. Germany is planning to burn lots of dirt aka lignite to cover the loss of their nuclear reactor fleet over the next ten years and America is resorting to removing mountaintops to get at residual coal reserves. The death rates and health effects of deep coal-mining operations are intolerable in any civilised country and I expect that even China will give it up eventually.

Using nukes to power hydrocarbon-fuel manufacture systems presumes that there is an excess of electrical power available from a mostly-nuke grid to divert to this aim, and cost again rears its ugly head. Renewables are a spit in the ocean and can't deliver the constant power needed for process plant of this type anyway.

122:

I see you've swallowed the oil industry propaganda hook, line and sinker. (Here's a hint: western Europe accounts for a couple of percent of the available land area -- never mind the aggregate land/ocean surface area -- of our planet. The mediaeval warm period is thus no more than a regional variation. We had a rather cold winter here in the UK last year, which led the usual conservative newspaper shills to declare "global warming is a myth" -- despite the UK representing 0.1% of the planetary surface area, and the true character of the proposition being global climate change, due to more energy being pumped into a dynamic system, leading to greater oscillations ...)

Ach. Why do I bother arguing with cranks?

123:

Thread de-railment is the best part of any internet discussion. Go with the flow.

124:

paws4thot

I live in London, I've been gardening on-and-off since before 1964.
I can see the CLIMATE changes as well as the seasonal variations.
The WEATHER in London has changed, and it is usualy warmer.
We're getting longer growing periods, usually.

Ther is a mass-participation climate monitoring project using phenology - when plants come into flower/leaf/birds appear, and the reverse in the Autumn.
Their data is gathered by tens of thousands of volunteers, of whom I amone. Their data is, therfore pretty robust, and with very small error-bars.
Try starting HERE
... and then tell me GW isn't on.

125:

that lot like to belive things that their pastor/oil baron /invisible sky fairy tells em

126:

Limiting Canadian production by water shortage is not a good bet. Limiting by pollution is a better bet, especially outside of Alberta. However, the tar sands are *in* Alberta, and resistance to pollution in uninhabited areas is sharply reduced by obscene profits the world over. If oil is reliably $150/bl over the long term, the tar sands are obscenely profitable, even if they need to clean up after themselves. At $100/bl, international pressure is probably needed, or at least a significant political shift in Canuckistan (Note many Canadians are not fond of the term "Canuckistan" - I give myself the occasional pass for being Canuckistani.)

Natural gas reserves are being expanded by shale gas. Admittedly, I don't know how much of the proposed shale gas reserves are hype. It is the cheapest form of synthetic oil, however.

Your coal comment puzzles me, since I thought the coal reserves were pretty big. Wikipedia puts them at 56 years at 2.5% growth in extraction, or 37 years of providing all current energy needs. In any case, as I understand it, if we burn all of the currently known coal reserves, we are thoroughly CO2 screwed.

Nuke plants are weirdly politically constrained right now in most of the world, but there's no reason France or Japan couldn't expand their existing programs in order to make phat loot, or other nations relax a bit in order to do same. Ten years ago I would have said such a thing was politically impossible, but the ground is shifting. Admittedly, the ramp up is on the order of ten years and the initial investment is large. Might even make for a bubble.

As for renewables, I really really hope I see the invention or the relatively cheap and rugged solar panel soon. A lot of good work is being done, and the power potential for solar is not spit in the wind if the cost can be brought down. Of course, there are plenty of issues with solar even if it is cheap and rugged, so maybe it will indeed be the next bubble.

127:

Yeah, but it was warmer in China too (based on the recorded length of growing seasons) so it wasn't local to Europe and Greenland.

The best solution would be for the developed world to move to Nuclear Power ala France. Coal is too filthy to burn even if you disregard AGW. From your loving description of your tour of a nuclear power plant I get the impression you aren't exactly anti-nuclear.

I remember reading that if the US had not canceled all those power plants after 3 Mile Island(which actually proved how inherently safe modern reactor designs are even in the face of abysmal bad luck and incompetence) it would be meeting it's Kyoto obligations today AS WELL AS having thousands less coal related deaths every year.

I live in British Columbia, so we have hydro coming out of our ears, but having pretty much nothing but mountains and rivers is a very rare situation, even in Canada and it pisses me off to no end that Canadian companies are building really safe CANDU reactors in other countries while the local enviro-nuts are throwing a hissy fit over plans to build a CANDU in Alberta(which is mostly coal powered right now).

128:

I'm not anti-nuclear, no. I am somewhat cynical about the large corporate enterprises who run just about all the components of our energy economy, though -- and I don't like the idea of nuclear power plants operated by folks whose priority is to maximize the quarterly ROI for the shareholders rather than, say, the long-term viability and security of the critical energy infrastructure.

129:

Perhaps you prefer governments that can cover up accidents, like the Windscale leak in 1957? ;) I don't believe Chernobyl was corporate run either, but I may be mistaken.

What we need is the right incentives to ensure that every effort is made to ensure construction quality, operator training, and maintenance. The corporate built civil airliners is not a bad model for the issue of quality construction. I don't believe governments per se improve the operation quality, what I believe is that financial strains from whatever cause result in problems leading to accidents.


130:

Bubbles appear because people think there should be lots of high-performing investment opportunities out there, while in fact most is boring low-yield stuff, or just stupidly risky on closer look.

The standard story of every bubble:
- It looks too good to be true.
- But it is true! Because there are unprecedented changes to the market! Technology! Advanced financial products! New markets!
- It really was too good to be true.

Of course, sometimes periods of unusually rapid technological change really DO occur, and hyped-up expectations actually pay out -- and everyone ends up with higher standard of living than before. 1870-1900 time period comes to mind. The problem is that you can't identify such periods except in retrospect.

131:

Germany is planning to burn lots of dirt aka lignite to cover the loss of their nuclear reactor fleet over the next ten years

Germany is losing its nuclear reactors? Why and how?

132:

Solar Cells?
- try Googling for Grätzel cells.
They are a promising, and already-commercial-on-a-small-scale development. Taken 29 years though, because industry wasn't interested, at first, then scale-up / production problems got in the way.

Or look at a very recent lab development here .....

133:

What will happen after peak oil is that demand will continually outstrip new supply. This will lead to a series of massive price spikes, which will trigger a worldwide recession until supply and demand come into balance.

The price spikes will also trigger massive investments and spending on alternatives, more efficient use, and further exploration, which will ameliorate the problem somewhat. However, development on some of these new technologies will languish once the falling price of oil makes them unprofitable.

After each spike the price of oil will probably stabilize for a while at a point somewhat higher than the previous cycle, but this series of spikes and crashes will go on until a plentiful substitute comes online that costs less than the price of oil at its low point.

It is possible to have a smoother transition, but that would require intelligent and far sighted policies.

134:

Guy demonstrated a car with an alkaline fuel cell using anhydrous ammonia as the hydrogen transport forty years ago. ("Demonstrated" as in, used it as his car for a couple-three years.) The tech has continued modest development and there's some folks in Germany trying to commercialize it.

We need anhydrous ammonia for agriculture. It's currently mostly from fossil sources for the hydrogen but commercial plants using water and air have been built and operated. The energy density is about half that of gasoline, and the zero-carbon approach is pretty obviously a practical way to use solar or wind to get a portable fuel.

So, really, any time any government really wants to treat the whole AGW thing as an actual existential threat, the problems won't be technical ones.

135:

The way I see it... the next bubble will be in the Software Industry. Until very recently the Software industry was mastly (if not solely) based on a artificial scarcity based economic model. New models (as free software) have came up based in abundance based economic models... the corporations that will maintain (or cannot adapt their businnes models) a scarcity based economy revenue model on the long run will not be able to compete with abudance based revenue models. A major accelerand of such paradigm shifts will be the Credit Austerity plans of EU members and generaly what we used to call "Western countries" and allready even in "non-informatics cultured" countries like Greece some Goverment deptartments and corporations are starting to adopt free software solutions (for the wrong reasons maybe but they do).

I have to admit that as a Greek and Free Software enthusiast I might be having a really distorted point of view on the subject. By the way... feed free to edit my comment cause English is not my native language.

136:

In the US I think there is definitely an Education Bubble starting. Hopefully I'm early in the curve and will be able to take advantage of it.

Right now we're getting into a situation where anyone can get tens of thousands of dollars in low interest credit. The job market sucks, so everyone figures they'll get another degree using this cheap credit. Schools are rushing to add additional classes -- online, evening, and weekend graduate school programs are popping up at every little private school and for-profit school as we speak. The school I'm going to has two separate accelerated graduate programs offering similar degrees...

The upshot is over the next decade the market will be flooded with people getting degrees - many of questionable value - and owning tens of thousands of dollars in debt.

137:

I think the idea of Peak Oil is confusing for many people. Supply and demand are curves, and both are affected by price. As the price rises supply will go up, it is true. But at the same time demand will go down.

Peak oil is just the point where cost causes demand to go down rather than the historical upward trend. We don't really know what that is ahead of time. Per capita demand may well go down for years even as aggregate demand continues to increase -- Americans could switch to fuel efficient cars at the same time that Chinese and Indians are using oil for the first time. If I cut my oil usage in half but a dozen Chinese start using 1/10 the oil I do then over all oil usage is going up.

In the long run we'll reach a point where other energy sources and storage methods have a lower cost at which point people will switch. In a century, oil might only be used for certain manufacturing processes. We haven't run out of oil, we've just found cheaper ways to get and store energy.

138:

That's not a bad assessment. Trouble is, the externalities from a nuclear accident are so gigantic that they dwarf any likely liability issues arising from an airliner disaster. Even if you dropped a fully-loaded A380 on, say, King's Cross or Penn Station at rush hour through provable negligence, the lawsuits arising from it would top out in single-digit billions of dollars. Whereas the fallout (pun intended) from a bad nuclear melt-down (i.e. Chernobyl 2.0) is bad enough to bankrupt any plausibly-imaginable private-sector actor. Consequently you get exaggeratedly conservative/risk-averse behaviour -- or pathological risk avoidance.

Something not dissimilar has happened in contraceptive pharmaceuticals in the United States; they're a generation behind Europe and cost an order of magnitude more, because the risk of lawsuits has deterred manufacturers from bringing new products to market in the USA. (The externalities of contraception failures include being stuck with child support, at a cost several orders of magnitude greater than any reasonable profit you can make from selling to any given customer.)

139:

No, first you said:

"AGW may or may not be real"

then you said:

"I didn't say that the planet wasn't warming."

Are you a politician, or just unable to comprehend the mass of evidence demonstrating that the plent is warming and most of that warming is our fault?
Secondly, your understanding of AGW appears to be based only upon reading the tabloid newspapers. The science demonstrating that it is happening and is our fault is different from that related to the temperature records of the past millenium. Related, but somewhat different, the past temperature history is irrelevant with regards to the actual known physics which tells us how the planet is warming.
As for the accusations about city centre thermometers, that has been shown to be a lie every time it comes up. People say "But what about the urban heat island effect?" and the scientists go away and check everything and come back and say "nope, not having an effect."

Just please go and read Spencer Weart's book "The discovery of Global warming" and everything available on Realclimate .com. You'll end up knowing far more about the topic and thus be able to comment without making yourself look foolish.

(My next post will be on topic, honest!)

140:

I have real trouble seeing a peak in anything over the next 5 to 10 years. Spikes in prices of stuff* due to profiteering, gambling and shortages, yes, but actual full blown bubbles, no. Except maybe whatever dodgy carbon trading scheme they come up with, can that bubble up?
Or maybe there will be a bubble in land prices in certain African countries, I know CHina and the UAE have been buying land outright to grow food for themselves or for the mineral rights, so I can see a second oil rush as people try to stake claims and corner the market on the last lot of resources that are available. So no global bubble, just small one or two country ones.

*stuff being a generic word for things made of matter, like grain, gold and computer chips.

141:

Charlie, I think most people misunderstand global warming as "more heat." But that's not how it gets expressed in terms of local weather. Anecdotally, you can have more or less heat in any one place, (and make local decisions about global warming which are, of course, completely wrong.)

Global warming is best explained as "there is more energy in the system." That energy will sometimes express itself as heat, but it might also generate a hellacious blizzard, or a really nasty hurricane, or horrible flooding, or anything else that might come under the heading of "ugly weather." Of course all this is driven by heat, but it doesn't appear so on the surface.

Climate deniers never look below the surface.

142:

Well, there is definitely a strong correlation between belief in Peak Oil and belief in Global Warning. 8-)

143:

Education.

144:

Didn't see if anyone else posted this but I would say social networking sites.

145:

SOAPBOX WARNING: Apropos of global warming:

Back in the 1980s, I had a class taught by John Holdren climatologist and now advisor to Pres. Obama. At that point, global warming was certainly on the radar, but the models were crude.

The interesting thing back then was that Dr. Holdren taught that the problem with global warming wasn't that the average temperature was going to get warmer, it was that the weather extremes were going to get more extreme.

And that's what seems to be happening.

Lots of cultures in the archeological record appear to have been done in by bad weather, and in every case, they weren't crushed by temperatures getting a degree or two warmer or cooler. Rather, they got nailed by decade-long droughts followed by torrential rains, mini Ice Ages, and the like. Crop failures suck, and drinking water can't be replaced by abundant free dust to drink.

This is the real concern about global warming. Yes, it will flood the coasts and cause some atoll dwellers to move, and yes, this sucks, big time. But the real concern is Beijing (or Mexico City, or any other metropolis) getting fried by 20 years of drought, then getting scoured by a year of record-breaking floods.

That is our future, and of course, we're responding by scaling back on infrastructure improvements to cope with the mess and pouring more greenhouse gases into the air. Gotta love humans. We're so clever and responsible.
/soapbox

146:

Because the German Green Party got into a ruling coalition, stayed there for a long time and got Germany to commit to phasing out all nuclear power, consequences be damned,

147:

Sea surface temperatures are rising and so are air temps. This is resulting in more evaporation and more water vapour in the atmosphere, itself a greenhouse gas (doncha just love positive feedback loops?). The extra moisture means more precipitation, including snowfall onto mountains adding to glaciers. Unfortunately many of the glaciers are melting faster than the extra snowfall can compensate for, resulting in flooding downstream during the spring and summer.

The climate change going on is not as simple as drought and sunshine and AGW scoffers who point to, for example, the heavy snowfalls in the US last winter don't ask themselves "where did all the moisture in those snow clouds come from?" Heavy winter snowfalls like that could well become more common in concert with with fewer of the bitterly cold dry weather systems of the past.

148:

Plus something like the MEDcottage, aka granny pod, which sits in the backyard for people who want to stay at home, but the home isn't accessible for them. Virginia has made it legal to put these in any backyard.

149:

Re: the price of disasters. The Macondo oil spill in the gulf of Mexico has cost BP about six billion dollars in direct control and remediation costs, and they're still not finished working at the wellsite with at least another month of work to go to plug and abandon the bore to meet the regulations set by the government. BP are committed to creating a 20 billion dollar fund to compensate the locals for commercial losses and to restore habitats damaged by the oil, and they still have to face a penalty phase in court both for the oil leak itself and for the loss of the Deepwater Horizon rig and eleven of its crew. They've costed all of this to be 32 billion dollars and that is an underestimate, and remember only eleven people died in the original accident.

150:

I think it'll be something releated to peak phosphorus.

151:

Are you arguing that only governments are big enough to take market risk with nukes?

If so, then maybe we have government run, but privately built reactors. That isn't going to happen in the US, and I doubt in the UK either. A better solution is to have government (or quasi-government) organizations insure the risk as a "too big to fail" entity and allow the private operators to continue. This is the sort of thing that is being suggested in the wake on the BP Gulf oil spill.

However, I would turn the question around. If there is a real risk of huge lawsuits due to an accident and the damage is real, not imagined, then do we even want nukes at all? If the risk is manageable but the lawsuit risk is very high, then we could either insure via the government, or we could try limiting lawsuit payments to prevent a re-occurrence of an industry of class action lawsuits to shake down companies with dubious claims.

I would hope that experts are correct that new reactor designs are far safer than those of 3 mile island vintage and that the likelihood of a bad accident would be minimal.


152:

Here's another bubble for you: legalised narcotics.

Assuming they are ever legalised.... But do they need to be in order for abubble to occur?

Consumption is still increasing - there's a bubble for you, although prices continue to deflate in the face of expanding supply... But the eventual victory of the Taliban in Afghanistan may well put a squeeze on worldwide supplies that lasts a year or two.

I wouldn't care to guess whether or when legalisation will happen thogh, so the proceeds of the bubble will remain in criminal hands...

And it's entirely possible that the excess profits will be invested by the better class of criminal in securing discreet channels of political support for *keeping* drugs illegal to preserve the profit margins associated with 'contraband' goods.

153:

There have been some real possibilities mentioned here - higher education, Chinese manufacturing or finance, oil, and gold.

Some others:
The dollar could be a bubble - the interest rate is too low, we're going to have to print our way out of debt at some point, major central banks are moving away from the dollar as a reserve currency and toward a basket of currencies.

US military spending could be a bubble - the official DOD budget is now about the same as the sum of all income taxes paid by those with adjusted gross incomes of less than $500K.* Once a few of the shadow defense items are added in,(State Dept., intel agencies, DHS, etc.) or even just a portion of the interest on the debt, the number gets to be even more unsustainable.

A less US centric potential bubble is "Contracts for Difference", one of the most popular derivatives types for retail speculators outside the US. Wikipedia: "Although no firm figures are available as trading is off-exchange, it is estimated that CFD related hedging accounts for somewhere between 20% and 40% the volume on the London Stock Exchange (LSE). A number of people in the industry back the view that a third of all LSE volume is CFD related."

These are available on virtually any underlying security, currency or index and have leverage between 4 to 1 for stocks to 100 to 1 for currencies. They are mostly unregulated, contracts vary for different brokers, and anyone with a few bob can play.

*($691B in tax paid by under $500K income in 2008; 2010 DOD budget with supplementals is $685B. Total incomes over $1M were about the same as total incomes below $40K in 2007 (16%-16.5% of total income for each category) 2008 figures had a slightly smaller gap due to the market crash, but current figures should be back around the 2007 proportions. Net of all social security,medicare, sales, excise, state and federal taxes, the total income of those above $1M in adjusted gross income was about the same as those earning less than $30,000. Source: US IRS figures.)

154:

Re:And it's entirely possible that the excess profits will be invested by the better class of criminal in securing discreet channels of political support for *keeping* drugs illegal to preserve the profit margins associated with 'contraband' goods.

I'm pretty sure it has already been happening for decades, which is why narcotics are still illegal despite public opposition.

155:

I read Charlie's post, wrote an answer, then read through the thread. Here's what I found.

Asebeo @21: Eventually, I think the US student loan bubble will bust. Some colleges charge 100,000+ for an undergratuate4 degree in literature. Not to mention law students and medical students and on another 100,000+, and jobs for the former aren't paying like they used to.

Don McArthur @25: Viewing things through the lens of abundance vs. scarcity and the economic upending that follows a change in those parameters, I'd say that the Education Bubble is the next to burst.

Absurdly high tuition rates in support of what is no longer limited by space and time constraints - pop!

John Arnold replied to this comment from Asebeo @34: Actually, I think education generally could be the next bubble. What exactly is it for? Most of the skills imparted are worthless. The expense was only justified when it identified you as a member of the elite. Now everyone has a 'degree', what's it really worth?

Anton P. Nym replied to this comment from John Arnold @36: And I find the idea that the skills of higher education are worthless to be apalling, particularly in a democracy. At the very least higher education should be imparting research and BS-detection skills... even if not intentionally.

Then more people chimed in, @38, @40, @41, @47, @52, @56, @57, @59, @63, @69, @73, @83, @87, @99, @136, @143.

This is the post I wrote:

Looking at things here in the US, the next bubble is the Education Bubble.

Hasn't anyone noticed that each year it is costing more and more to teach less and less. You already have people building up huge student loans to get Degrees that represent no real knowledge, just to work at Starbucks.

- We have a 50% drop out rate from high school, a 40% drop out rate from college.

- To get promoted at work you need "Education Credits" or an "Advanced Degree" any of which is achieved by taking expensive classes that teach nothing and are simply certificate/diploma mills.

We will reach a point in the next five years when the Education Bubble will implode.

All of the major Universities in the US are already one class action lawsuit away from being asset stripped, bulldozed, and replaced with yuppie condos.

Timeline:

- 2015 the first class action lawsuit wins.

- 2020 the University Resolution Trust(U-Trust) has stress tested and taken apart 90% of all US universities, freeing up the money to make K through 12 education and Technical schools actually work for the majority of the populace.

That frees up resources and people to have actual universities of higher learning for the few that need advanced degrees.

---

After reading through the thread, I'm glad to see that people are seeing this bubble about to happen. Sadly, just as with this latest crash, no one in power will think that it's possible for the Education Bubble to even exist. Not until their university/diploma mill is gone and their expensive degree is rendered worthless will they notice. MBA from where? Phd from who? Here's a shovel, go fill potholes.

156:

Andrew,

That's generally called 'peak lite' and isn't what's generally referred to as Peak Oil. It's a very finance friendly viewpoint on the whole area, and suffers for the idea that cost is the prime factor. While it certainly is there, Peak Oil is concerned with the wider reality of geology, systems and finite limits - all those things that bring economist out in a rash and start them claiming there are no limits to growth.

The reality is that the prime, plump fields get exploited first, and there is a time distribution of discoveries where they are also found first. Put these two together and, as you tend towards the exploitation of half the reserves, you find that what's left are smaller & harder fields that deplete faster once you've actually tapped them. Eventually you can't catch up.

Energy return over Energy Invested (EROEI) goes down till the point where you'd actually have to throw more energy into the process than you'd get out. At that point its not exploiting resources for energy, its transforming one energy source into another. As such its not really going to power industrial development, since our systems don't work that way. Actually, when it reaches somewhere near 3-4 EROEI things stop working - given the systemic inefficiencies.

So its not just that supply causes costs to rise and demand to fall - that's more a sideline consequence that kills economies. It's that the net flow can't be keep up, and all the money in the world only moves the peak a few years at most.

Oh, and all those saying that all that needs to happen is oil prices need to rise to $150+? The empirical and modelling output shows that once oil hits $90+ for a while, western economies go into recession. Basically the way that society is setup it can't handle higher prices and although there are efficiency improvements and changes that can be made, they take TIME. On the downslope, every year is worse and harder than the last. You have to run faster than that in efficiency savings to not get swallowed by the wave.

How fast do you think our economies can change, rather than collapse?

And then there's net exports ...

157:

@ 145
You mean like Moskva right now, with Putin posturing, whilst the areas around the city burn?

@152
" ... eventual victory of the Taliban "
No, cannot be allowed to happen.
Thes people, like Hizbollah and Hamas are Nazis, especially where the bits about living space, and greater empire, and women, and killing all the "jews" are concerned.
WWII isn't over until they are crushed.
( Please note this statement is NOT to be taken as support for the present guvmint of Israel )
/rant

@ 154
Charlie has already been through this in "Merchant Princes" - of COURSE it profits the major dealers to stay illegal.
I expect that drugs will be legalised and taxed here in about 10 years, since we are at about the same point with that now, as we were with abortion and homosexuality reform as we were in say, 1958, and a retiring cheif medical officer has just called for legalise-and-tax-it ....

158:

Serious question about AGW - Why is it that pro-AGW vested interests like climate scientists are automatically believable (tell me it's not career suicide for a climatologist not employed by an oil company to not be pro-AGW. Now try and make it believable), and AGW cynics who're saying "look, your published arguments have holes in them" are automatically cranks?

I'm not a climate scientist, but I am a statistician, and am voicing what seem to be unasked or at best glossed over questions in the statistical records behind the published science.

159:

OK, this is definitely veering off topic, but...
The climatologists do the work, get it published and reviewed and work on improving it. Therefore they automatically have more believability than your random man with a blog.
You havn't been specific, but you're probably talking about MBH '98, a paper with, depending on how you look at it, improper/ incomplete stats use. However they've brought out papers since then which address all the shortcomings of MBH '98, and yet there is still a hockey stick shape and the end of the 20th century was still warmer than any time in the last 1,000 years.

If you seriously want to discuss the statistics, go to this place, run by an actual professional statistician. He doesn't suffer fools gladly, but be sensible and you can have a proper discussion:
http://tamino.wordpress.com/

I find it interesting that you think at least 98% of climatologists think AGW exists and is a threat just for their job security, when you can demonstrably earn more money on the lecutre circuit against AGW (Look at Lord Monckton) and by publishing books against it (eg PLimer). Do you really think people like to sit there and go "Well, looks like my children are screwed."?

Finally, a lot of the problems you are having probably come from the confused media coverage, where they give both sides equal weight, and like to set up he said she said dialogues which are not conducive to actually reach9ing any kind of accurate understanding. Plus there are value laden politics involved so people frrom all sides will sieze upon the results that suit them, rather than looking at the whole picture.

160:

From my unexalted perspective, it won't be this bubble or that so much as a cluster, another problem erupting before the previous burst is cleaned up. All driven by an insatiable finance sector, ongoing class warfare and inertia. What the world will look like after the dust settles should be an ample topic for speculative fiction.

161:

Cheers for the link - subject now well and truly closed for now as far as I'm concerned.

162:

Thats ok.
Now, on with the topic...

(Now if Charlie really wanted a mega thread he could ask what the best ways of dealing with AGW are and the likely effects 50 years in the future)

I still wonder if we've run out of proper bbbles simply because everything is rather screwed up from the recession.

163:

Bubbles function as a looting mechanism; they transfer some small fraction of savings to third parties in the process of destroying a lot of wealth. This appears to be the primary structural driver in creating the conditions that allow and support them.

Bubble frequency drops as the amount of savings available for looting drops. This is one of the reasons for the traditional semi-generational cyclical nature of bubbles, and why the US right is so very, very keen on privatizing/abolishing Social Security; that makes a lot of savings lootable where before they were not.

164:

WSJ 8/18/2010 OpEd piece by Jeremy Siegel & Jeremy Schwartz
The Great American Bond Bubble

165:

Dollar has been mentioned earlier as a potential bubble. You could claim that Money in it self is a bubble. Modern currencies do not have any intrinsic value. It is mostly created through the process of people and companies providing credit to each others. The total supply of money M2 is growing much faster than the actual economy in all markets I know…
This can not continue forever as the ratio between available money and available assets will become too high, triggering inflation.

166:

A long term 'bubble' that might be bursting now is government guaranteed benefits. This includes social security pensions. California is already mired in this problem and may presage a more general national problem (hopefully not). Before his death, Peter Drucker warned that Europe and Japan were going to have to grapple with this problem as the demographics were worse.
In the US, the problem is exacerbated by the increasing disparity in incomes and wealth, with the wealthy getting congress to increasingly exempt them from paying taxes.

167:

Alex,

A good point, but I would modify it.

In one sense, the "savings for retirement" bubble has already burst, in that people were using their homes as their financial investment. The idea was to downsize from the McMansion to cover their retirements, and we already know where that went.

In a second sense, there's an end-of-life predatory scheme out there, where you give all your money to the retirement home to live there, then your kids go into debt supporting you at the end of your life. But that's not a bubble, just unscrupulous businessmen taking advantage of the fact that we don't live as multi-generational families any more. Yes, some people need specialized end-of-life care, but this fantasy of living independently in your waning years while your kids are in another time zone comes with a hefty price tag.

In the bigger sense, though, Alex, you're right: it's not just government funded pensions, it's government debt in general, especially for states, counties, and cities. Pensions are a big part of that debt, but it also includes emergency services and infrastructure. Moreover, various laws make sensible resolution almost impossible. California is the poster child for how to bollix a state through poorly designed laws (this is a nonpartisan criticism), but they're just the extreme end of a general trend.

168:

Telepresence and telerobots.

Here is my daydream:

Motion capture suits like those used for computer aided animation will become interfaces for computer gaming.

Possibly the first board commercial success for a motion capture body suit will be a more sophisticated version of the Wii controller. Then if Microsoft sees money being made, they will steal it for the X-box (just as they ripped off Apple's GUI and Netscape's internet browser). Suits will move to other platforms as well.

Given capable motion capture suits, the next step would be using these to operate ROVs. ROVs with stereoscopic vision, heads arms and dextrous hands could be employed by BP for it's deep water construction. Or to deal with the inevitable crisis that will pop up from time to time. Or maybe by Massey in their West Virginia coal mines.

The initial markets would be work places that are hazardous and/or hard to reach.

Then as more telerobots are produced, prices fall and they appear in more mundane work environments. It is promoted as a green technology since teleoperators can work from the comfort and safety of their living rooms rather than making a commute.

It is promoted as the next industrial revolution and many investors jump on the bandwagon. In the frenzy a few telerobot companies do well, but many will go belly up and some companies will be out and out schemes to separate fools from their money.

As telerobots become more ubiquitous, they are more frequently used for vandalism and other mischief. The inevitable law suits add some sound and fury to the popping of this bubble.

169:

@132:

Greg, what very recent lab development in solar cells are you talking about? Looking at the source, I don't see a link included. I don't think your "recent development" will pan out, that it will go bust just like all the other amazing breakthroughs that we've heard about so far . . . but I'm an optimist :-)

170:

"Oh, and all those saying that all that needs to happen is oil prices need to rise to $150+? The empirical and modelling output shows that once oil hits $90+ for a while, western economies go into recession. Basically the way that society is setup it can't handle higher prices and although there are efficiency improvements and changes that can be made, they take TIME. On the downslope, every year is worse and harder than the last. You have to run faster than that in efficiency savings to not get swallowed by the wave.

How fast do you think our economies can change, rather than collapse?"

If the excreton flux gets high enough, change can happen pretty fast. The last big oil peak saw a whole bunch of pilot approached spring up, despite that fact that it was well understood that the Saudis could end the spike whenever they wanted to, and would certainly do so if they felt threatened. I will allow that wildly counterproductive approaches to the problem are possible, and Homo Sapiens are no doubt capable of truly impressive counterproductivity, so we could easily cause our own demise trying to deal, but that's possible with any problem.

Overall, I am doubtful of scenarios where the oil runs out too fast for the resources available to modern civilization to deal with it. It may not be pretty, in fact it could be pretty fokking awful if we screw up enough, but I don't think it's a civilization ender. Peak oil doesn't scare me nearly as much as nuclear war or CO2 emissions.

Speaking of those emissions, $150/bl synthetic oil *isn't a good thing*, since it is likely to be used to extend our CO2 bender artificially.

171:

I think a distinction should be made between Peak Oil related to extraction, and Peak Oil related to use. We have technology to convert other sorts of fossil fuels and carbon materials into oil. It is just very energy intensive more expensive than pumping it from the ground.

If all the oil in the ground was used up, we would still be able to use oil. It would simply cease to be an energy source and become an energy storage method. The question then is if it is more cost effective to build batteries or to manufacture petroleum from coal, biomass, etc.

So we could have a situation where we run out of oil but still keep using it.

172:

One bubble I'd like to see burst is the number of parts (widgets if you prefer) that are currently being produced world-wide with a move towards some reasonable form of standardization.(Or at least a global cross-reference list) Trying to find replacement parts for anything manufactured more than 10 to 15 years ago takes a good deal of time and effort just doing an internet search to find in some cases a reasonable facsimile.

If any of you come across this:
Singer Servomotor
Item Ident 05088-FPE25L-107-5 Hz 60
Volts 115 115 Poles 2 Watts Output 10
Duty Cont Ph 2

I need not one, but 3 for replacement units :)
And thanks to the university I work for, money is not an object.

173:

The important factor with Peak Oil is the time scale it happens over. A gradual increase in the price of oil can be dealt with fairly painlessly. A sudden change would be a disaster because there would be no time to adjust.

174:

A class action lawsuit about what? You can't, so far as I know (IANAL) sue a university for not having a good job after getting a degree, since that's outside of their control (on several factors). You can't even sue them for not teaching you anything, again because there are several factors they could not possibly be held responsible for that can influence that. So any class-action suit I can imagine would have to be the university actively going out of their way to harm you in some fashion, or negligently allowing such to happen, which could at most apply to one or two schools at a time, not a general suit against all universities. And the class acting would necessarily be rather small.

175:

Alex, you're arguing for a market-based solution to a huge risk externality. Alas, markets are shit at dealing with externalities. I'm arguing for a non-market-based (which is not, ipso facto the same as government-based, unless you look at it from between the currently fashionable blinkers of an ideologically pure capitalist).

176:

General moderation note:

I am not enthusiastic about letting people use this blog as a soapbox for idiotic/crack-brained theories. I number among the ideas that are self-evidently bogus: young-earth Creationism, denial of evolution (with a loophole for informed discussion of controversies within the field e.g. the pros and cons of group selection, selfish genes, and so on), market fundamentalism uber alles, "global warming is a conspiracy", "Barack Obama is a Secret Muslim Infiltrator from Mars", and stuff along similar lines.

I'm in a foul mood right now (I embarked this morning on a 28 hour three-sector flight, and am already running 12 hours late thanks to the first flight being delayed); thus, I am inclined to go through the comments left in my absence with fire and the sword once I get where I'm going.

177:

Okay, Charlie is not here. Let the party begin!!!

178:

Or not. There are other moderators, who may take Charlie's absence as a sign to indulge their wildest moderating power fantasies. Mwahahaha and the like.

179:

Waht, your widest moderating power fantasies don`t include parties in them?

180:

There are already legalized narcotics. I take at least one every night so the pain will go away and I can sleep. I can't get it in the mail like the rest of my meds; I have to get it in person at the pharmacy and sign a paper, but it's worth it.

181:

Wouldn't worry about the Politicians and Media mogals messing it up progress in all sciences has gone expodential and the banks, media and politicians are increasingly redundant. Charlies "predictions" in accelerando look well under way yhaaaaaa!

182:

What about the idea that bubbles are linked to the generational turnover of staff within corporations or other human systems? Put basically, a generation participates in a bubble, comes through the crash, and spends the remainder of their time in that sphere making sure that the same thing doesn't happen again. I'm pretty sure there are some compelling examples in the banking/finance sector, but I can't put my hand to any of them.

In any case, simply look for an economic or social area that experienced a big 'value-bust' in the past ten/twenty years and appears to be making a steady recovery. Wait for the middle-management to hit senior management and wash out. Wait for the repetition of the same mistakes by the young and thrusting new generation of executives not willing to be hidebound by their predecessors' fuddy-duddy ways. Complicate the matter by noting that they may also have new shiny toys to play with that their predecessors did not, and the risk compounds as they have the opportunity to get it wrong multiple times before the message sinks in.

Rinse and repeat.

183:

Where does the phosphorous go after it's used? If we eat it, could we use carefully treated (first world standard treated) human waste as a solution? If it's run off, could it be recaptured by some process?

184:

any class-action suit I can imagine would have to be the university actively going out of their way to harm you in some fashion, or negligently allowing such to happen

Exactly my point. They are all doing that, and the bigger, the more expensive the university the greater the damage they are intentionally causing. That's why it will be an Ivy League college to be taken down first, triggering the government to step in and form U-Trust to avoid the costly litigation as with the asbestos industry. Only the lawyers got rich on that one.

When the Education Bubble hits there will be such a systemic crisis that the government will have to step in to stem the bleeding. Whole industries will suddenly face the fact that their white color employees no longer have valid degrees, and their HR rules will trigger wiping out all people in those jobs that demand degrees.

I'm glad I'm retired.

185:

I really don't think the education bubble is going to happen as described in 184. What will get taken out are the diploma mills for the poor and desperate, which don't actually teach any useful skills and which are for profit, so saddle the victims with debts and a useless bit of paper, see Bridgepoint (Ashford University) over here in San Diego.

There's also nothing like the magnitude of debt out there to cause a major issue - per WSJ it's only about $800 Bbn, fiddling small change by financial crisis levels.

No way in hell are the Ivy Leagues going down - they are the schools of the ruling kelptocrat class in the US, and they look after their own. Ivy League gets you a job, unless you are a complete dumbass, and even then you're still employable (see G.W. Bush, J. Kerry for examples)

The thing that is the monster in the dark is the huge amount of derivative financial instruments out there - the gross amount hit $600 trillion in 2009. Obviously that's not all at risk, but no-one has a clue how on earth that nets out, and the fuckwits in the US congress got lobbied enough to exempt pretty much all derivatives from the so-called finance reform act. So basically no bank that writes a significant amount of derivatives can be allowed to ever go bust, as the results are completely unforeseeable.

The "problem" is that banking is fundamentally boring - lend at 5%, pay interest to depositors at 3%, then go home. However that wasn't good enough and this lead to the Goldman Sachs and other assorted very clever people with no morals to loot the country through obscure schemes. There are legitimate uses for derivatives; but there is no legitimate reason for the gross value to be $800 Tr when the GDP of the US is only $14.3 Tr - so 99% of them are clearly speculative instruments.

When that little lot explodes, it'll make the last 2 years look like a cakewalk :(

Oh, and gold is a bubble, sold to the Glen Beck mouthbreather contingent.

186:

Andrew,

Too right it's all determined by how fast the decline is. Of course, if we had begun the transition away from oil in plenty of time, thing would be easier. However given the 'market' is likely to ensure nothing significant is done till decline is obvious, we need to assume a transition start date of t+3 years.

Problem is, the only mechanism we currently have in place to deal with supply problems is shortage, high prices, and thus recession. Europe has done something with taxes, but as far as positive actions to reform society to not rely on oil.....well, have you seen any?

It's difficult to judge, but personally I think our western societies could just about handle up to 2-3% decline per annum, on a continuing basis. We'd be talking depression, an effective war footing, rationing, etc., but given that shortages wouldn't be uniform, we could probably handle that by sacrificing the developing world.

Problem is, once you take into account the expected decline rates; the announced new field development plans, expected new technology, net export effects, and not least, the changing of the game from "pump'n'earn" to "conserve'n'partner" - well you get a figure that's at minimum 6%, probably over 8%.

It's something I've looked at for years now, trying to detect a hole or way out. Haven't found one that works in the practical real world of politics, markets, and scientific limits. Hope to hell I'm wrong.

Oh, and Charlie, I understand that this is not the purpose of your blog, so if you want to curtail such discussions under the heading of "idiotic/crack-brained theories" I'm happy to do so. Just seemed appropriate to the 'what have I missed' question about speculative bubbles.

187:

Yes, we should be recycling or sewage onto our fields.

The problem isn't the nutrients, it's the industrial chemicals.

All it takes is the equivalent of one person throwing a car battery in a sewer (e.g. lead-acid battery) to make the sewage unusable as fertilizer.

In the "people are stupid" file, it's worth noting that sewage workers have been known to weld shut manhole covers near companies that work with heavy metals, because some people are inspired to cut their waste disposal bills by adding toxics to the sewage system. Getting all the toxics out of our current sewage system makes sewage too expensive (and risky) to use as fertilizer. Hence it gets dumped, or gets incinerated and the ash treated as toxic waste (due to the lead and cadmium added by the greedy idiots above, plus the stuff dumped by clueless hobbyists like me trying to clean up).

There's a wonderful book called Farmers of Forty Centuries about farming 100 years ago in China, Japan, and Korea, done by an American agronomist. It's still in print. In that book, a Japanese man scoffed at the western tradition of flushing human wastes down the sewer. At that point in time, the Japanese sold the contents of their chamber pots to middlemen, who sold the fertilizer to farmers, who composted it and used it in their fields. Aside from having to boil all vegetables grown this way, it worked.

188:

Is burning it going to make it chemically simple enough to extract reasonably? Might something else?

189:

Speaking of energy usage, the latest issue of Science is devoted to the topic. Till 27 August, some of the papers are free to download and all are free if one registers with the journal.
http://www.sciencemag.org/special/energy/

190:

@ 165
Correction.
NO CURRENCY has an "intrinsic value", no not even gold or platinum. Read Terry Pratchett .....

@ 168
Telerobots etc. I'll go with that, especially since someone is preparing to market one of the first domestic versions - see back threads here, somewhere ....

@ 169
google for Grätzel cells, or look up the (Nobel-Prizewinner) of that name. The ide is not new ( about 25/30 years now) but the developments are.

Charlie @ 176.
Suggestion # 1
Post that note to the general moderation notes/warning.
Suggestion #2
Send copies to:
"Vox Day", CHristopher Booker, C Monckton .....
(I think you get the idea)

@ 182
Ditto for industrial and management accidents and cock-ups generally.
EG: Sevenoaks train crash - 1927
Hither Green crash - 1967
Derailment at Windsor - 2009
All caused by people forgetting how to do proper routine maintenance....

@ 187
And if you do what more modern versions of that system do, and sterilise the sewage after/during fermentation, usually by allowing the ferment-temperature to rise as it goes along, you don't even have to boil the veg ....

191:

Hop@168: I see two problems with telepresence.

1) Even if you use telepresence to offshore the human end of a blue-collar job to somewhere with much lower labour costs, the cost of the telepresence kit is going to remain a high-tech, high unit cost piece of kit for many many years to come. I suspect that the economics of using it rather than a human in situ in many industries will be marginal at best. Of course, we may see governments mandating telepresence in dangerous industries such as mining, so *those* jobs may well offshore.

2) Telepresence of white-collar jobs has been possible for decades now, but isn't happening anything like as much as was expected. Although businesses have been happy to offshore whole functions, managers have so far proved reluctant to allow remote working of the jobs they retain. We just lost a really good candidate for a development position to another offer, and in part it was because he wanted to work from home a lot, and HR told him no.

192:

allynh@184: When the Education Bubble hits there will be such a systemic crisis that the government will have to step in to stem the bleeding. Whole industries will suddenly face the fact that their white color employees no longer have valid degrees, and their HR rules will trigger wiping out all people in those jobs that demand degrees.

Why does a university going under invalidate the degrees it previously issued? There's plenty of universities around the world that have closed for one reason or another, but no-one considers the alumni to suddenly not have degrees. In any case, I've only been asked to prove the existence of my degree by at my first graduate job, and that was in local government.

And many universities, especially the Ivy League have very, very deep pockets indeed. Harvard has an endowment of $26Bn - how many class action suits can that sort of money pay to go away?

193:

Telepresence will lead to a breakthrough in the prostitution industry and all will rejoice.

194:

In addition to 192, what on earth does this mean?

"Exactly my point. They are all doing that, and the bigger, the more expensive the university the greater the damage they are intentionally causing."

All universities are deliberately, actionably causing harm to their graduates? What are you talking about? Just arguing "my degree course didn't teach me the skills I need" will get laughed out of court, by the way.

Not to mention that even if a university going under invalidated its degrees (which isn't true of course), do you really think that Intel is going to say "OMG! Our VP of Development suddenly doesn't have the MIT doctorate he used to have! We must fire him immediately!" Of course they won't. They're not insane.

195:

Alas, markets are shit at dealing with externalities.

While that is a popular perception, it just isn't true. What I think you mean is that markets that do not take into account externalities are *shit* at dealing with them. Well obviously.

Externalities may well be covered by markets conditions. Compliance with government regulations for them are part of the market price. Insurance to cover accidents are part of the market price. It is that insurance cost that may be too high, and which excluded the pharmaceutical developments you mentioned earlier, or the exit of US manufacturers from sport airplanes.

The bigger issue is whether the externality cost is fully covered and whether the risk can be distributed enough to prevent insurer bankruptcy. We saw that this was not the case with the sub-prime meltdown as AIG has not distributed the risk of default. Similarly we saw the collapse of many 'names' syndicates at Lloyds back in the late 1980's (?).

It is however, unclear to me how you mitigate this with a non-market based solution. What exactly are you proposing and how would it work?

196:

Another bubble that may burst is the price of CEOs in the US. I'm calling it a bubble because:

1. Prices are rising faster than inflation and results.
2. The supply is apparently constrained.
3. Companies keep on bidding up the price on the expectation that the returns are +ve.

This trend has been extant since the early 1980's and we are in the 2nd generation phase of this bubble. My guess is that it bursts within 20-30 years.

197:

People just get the front and back parts of their ideas scrambled:

These are silly:
young-earth Creationism,
denial of evolution,
market fundamentalism uber alles,
"global warming is a conspiracy",
"Barack Obama is a Secret Muslim Infiltrator from Mars

These make a strange amount of sense:
evolution on a young-earth,
denial of Creationism,
market fundamentalism is surprisingly warlike (from Mars),
Global Secret Muslim Infiltrators is a conspiracy
Barack Obama is very (uber alles) hot (warming)

198:

@196

I wish you were right, but the reality is the CEOs and Board members are a self-serving and self-perpetuating elite, as they all select each other for different boards, vote each other obscene pay awards/stock options, and cover for each other when they screw up. Much as I'd like to see their salaries cut by 90% to return to some degree of rationality, it ain't going to happen.

Case in point, the CEO of the first biotech I worked for has since worked for two more, made over $1M per year, and was paid in excess of $2M from each just to go away. Nice chap, useless businessman, continually employed.

199:

I'll address the degree problem with a peek at my field as of almost a decade ago.

--There were about 500 PhDs in that field in that year in the US.
--There were about 50 academic job openings.

So 90% of the 500 PhDs were off doing something else almost immediately.

First question: why were so many PhDs being created? The answer is that in the 1960s and 1970s when the baby boomers hit college, the colleges chose to start using TAs and lecturers to teach classes previously taught by professors.

This is good, in that grad students tend to be closer to undergrads, and understand better what they're going through. This is bad, in that the grad students don't know as much as the professors, and may (and do) teach BS.

Professors, instead, have been edged into an entrepreneurial role, where they spend more of their time getting work for themselves and their grad students. This is fine, except where it doesn't make sense. This is fine, except that some people are better teachers than businessmen, and you penalize these people at the expense of those who bring in money by either being very good at research or sounding really good.

And Gresham's Law does apply to academia: Bad drives out good, and sounding good is easier than being good. In many cases, it can be surprisingly hard to figure out which studies are BS and which aren't. The simplest way to fake something is to find what people are expecting, after all.

Now, I'm pretty sure that many (hopefully almost all) academics are honest, but I have to point out that this is not a system that's tremendously well-geared towards turning out high-quality educated people.

The question is: is this education worth $40,000 in debt? Or $100,000? Who pays and for what?

If you're paying for something of unclear value using debt, the cost is skyrocketing, and "the rules are changing," that has most of the characteristics of a bubble.

The people in the bubble, though, aren't the students, they're the investors in student loan debt. The students are the product, and their value as assets is increasingly hard to determine.

200:

Radio Lab had an interesting short that touched on this topic, where they discussed the benefits of being part of a small birth cohort. There's less competition for jobs, education, and markets. The generation ahead of you was too big, so you get alot of PhDs teaching math/science classes in public schools, and when you graduate, you have this (relatively) huge market to service (baby boomers).

201:

OK, a few points.
First, no doubt all that you say is true - but that doesn't rise to the level of an actionable tort that would bring down the entire university system in a massive class-action apocalypse.

Second, is a degree worth the debt it incurs? It seems to be - there's still a premium in wages for having a degree, and a bigger one for having more than one degree. (Though it's not as big as it used to be.)

The key point to remember is that an investor in student loan debt isn't investing in the future value of a degree per se, they're investing in the future creditworthiness of a graduate. They're very different things. Even if a degree is a complete waste of money - it doesn't teach anything worthwhile and makes no difference to the graduate's future earnings - that doesn't mean that a graduate will be unable to repay their student debt. There is no resale value on a degree - that's the real difference between degrees and houses or cars. No secondary market.

Third: is it necessarily wrong that there are more PhDs being produced than there are academic opportunities? Depends on the field, I suppose, but certainly in some fields there are a lot of non-academic PhD-level jobs. Which is good. After all, one of the main jobs of a PhD with an academic job is to produce more PhDs. If that was the only sort of job available, then the whole PhD system would be rather a self-licking ice cream.

202:

The symptoms you mention is the reason there is bubble. But at some point, shareholders plus regulations may/will be able to turn the tide, particularly once it becomes clear that there are consequences for boards that promote this "looting" cycle.

I've had CEOs just like your example (in biotech too) and it blows my mind that they just keep on getting hired despite their obvious failures. My guess is that they are hired for startups because they are compliant to the VCs. Otherwise why keep hiring failures?


203:

Hi Ajay,

The key point of the creditworthiness can be summarized by the (potentially mythical) writing MFA from a well-known private college who has $100,000 in student loan debt and wants to be an author.

Is this person a good credit risk? Perhaps, but probably not if he attempts to be a full-time author.

The point here is not that the student shouldn't have gotten an MFA with that load of debt.

The question is: a) is that fledgling author a reasonable investment and (more importantly)b) is the owner of that debt aware of that person's credit risk, or is that risk buried in a bundle of debt that the owner bought from the loan agency?

To me, this sounds a bit like the mortgage derivatives problem we had a few years ago, and as education costs go up, so does the risk for the creditors. The question is, do the creditors have any way of forecasting their real risk, or are they depending on the "fact" that degree owners make more than non-degree owners to make the investment pay off for them?

204:

We already have telepresence in a very dangerous industry; the US Air Force calls them 'unmanned drones', and the actual pilots are in a basement somewhere in California, I believe. True, this is a special case, but the military has been in the forefront of technology in the past, which later disseminates into other market-oriented endeavors.

And when valuable robots are sent down into say, coal mines, rather than people, the company will have to pay more attention to safety since the costs per robot immediately hit the bottom line (rather than derivable only through lawsuits and estimated/accrued through the actuary system).

If something can be accounted for more easily, people pay more attention to it.

205:

OK, that makes more sense.

I would say, however, that the size of the markets is very different. In the US, securitised student loans are about $250 billion. Securitised residential mortgages are more like $9 trillion. If all the student loans in the US suddenly went to zero value - everyone suddenly stopped repaying them, and there was no prospect of recovering any money from them at all - it would be a similar-sized shock to the subprime crisis. But, of course, that isn't going to happen.
Also, of course, in a lot of US states the mortgage is non-recourse; secured against the house alone. If you want, you can walk away and post the keys to the bank, and even if you owe $500k and the bank can't sell the house for more than $100k, it can't come after you for the other $400k.
This obviously isn't the case for student loans.

206:

On 183 / 187 and , err ..Gold That isn't Black ..

Once Upon a Time I was on a walking holiday in the south of France when I met a walking party of Dutch Public Health workers who, one evening during dinner, told me far more than I had ever wanted to know about the problems that the Dutch have with Pig Shit. Apparently as a bi product of their Porcine Products industry and because of the limited land mass of Holland the Dutch have far more Pig Shit than they know what to do with.

Who would have thought that cute blond Girls would be so interested - nay, bloody obsessed ! - with Pig Shit? Do I look to be the sort of man who is interested in Pig Shit?

Don't answer that but do look at this interesting article that reflects upon the Shit Problem and it's Natural consequences ...

http://www.ledburyreporter.co.uk/news/local/3840852.Farmer_threatens_manure_protest_over_eviction_threat/


I have never sought to discover just what the outcome of the case was ...

" I cashed in my military pension to buy stock and pay bills. I have nothing to lose. Put me in jail - it solves the homelessness problem. He said of his protest plans: “I would lock the door and resist passively. I would fill balloons with cow slurry and cover myself and my whole house with slurry.

“If they come to arrest me, it will be a dirty arrest. There will be a lot of cow manure flying. "

I just don't want to spoil the picture that formed in my head - of the farmer solemnly filling balloons with shit - with dull reality.

True that piece isn't about Pig Shit as such and so here as another piece that deals with fundemental problems and the Law ...

http://www.thepigsite.com/swinenews/8928/why-new-slurry-rules-pose-hidden-dangers-for-pig-producers


The Stand In for Our Host Moderator will note that this is not a digression from the topic but rather the economics of financial bubbles at its most fundamental level.

207:

Glad to help.

One other thing: it's not a real bubble because there's only $250 billion in exposure?

Sigh.

That's on order $1,000 per capita for the US population. Now compared with the $30,000 per capita we're on the hook for in the mortgage mess, that's relatively small, but you know, back in the old days, people got in trouble for blowing that much. Swinging from the lamp-posts kind of trouble.

We're getting soft. Or numb. Or maybe we're just biding our time...

208:

Drone pilots are generally fairly close to their drones because they want to have the communication accurate and close. Apparently the pilots are unhappy about working at a distance and not in the cockpit.

There are a number of drones in the oceans, too, not just the ones used on Deep Horizon.

209:

Well, it's not just better communications (pilots being close to drones), though that is a factor. There's a social distance between drone pilots and Real Pilots who get to go up in the plane (and in the US Air Force, this affects little things like promotions and assignments). Having flown a desk (two inches too short for navigator back in 1976 during the sextant days, not that I'm bitter--I offered to wear heels, she whines), I do know what I'm talking about. There is a real divide between those who go up into the air and those who don't in that service, and pilots really _hate_ being downgraded into a deskpounder (which is what many see drone work as). I will grant the role of communications, but the social divide is what _really_ hurts.

210:

A lot of home owners in the US have discovered that because of the way securitized instruments based on mortgage loans were sliced and diced no one knows where the actual deed is held. And in a lot of states the law requires that the deed-holder be the one who forecloses. So if your mortgage is underwater and you can't pay the balloon payments, you just tell them to produce the papers. That can take anywhere from 6 months to eternity. I know of one Congressperson who has publicly advised people to do this (see Roger Moore's film "Capitalism: A Love Story", and be sure to watch the trailing credits, the music will make you exclaim, "No, they didn't!").

211:

I'll echo the US$ bubble. If America policy is to default on debt, the massive US-china trade boondoggle of trading american paper for chinese 'real-stuff' becomes a cluster of epic proportions.... if America decides to print their way out of debt, repercussions with china (and the world at large) are also pear-shaped in fun, unpredictable ways....

A mini-bubble is probably the gadget market. Clearly Apple has a legion of loyal customers and huge profit margins. As soon as the gadget market matures and commoditizes, or miniaturization and ubiquitous wifi makes the smart-phone/laptop/tablet/netbook/desktop categories obsolete, or distributed (cloud?) hardware + wifi makes a personal client/server model practical where you carry only presentation tech and pay for a MIPS & bandwidth plan.....

catastrophic bubble effects require distributed investment in said bubble assets - real estate, equities, 'gold', the US$ itself. otherwise you need a technology change causing massive workforce transition i.e. grapes of wrath or computerization putting paper-workers out of jobs. A decent voice-rec AI could make call-centers (and a multitude of employees) obsolete.

though nothing obvious springs to mind, I'd definitely look at anything heavily subsidized or penalized for no good reason, i.e. what happens if US laws requiring domestic manufacture of vehicles were heavily modified - and the last few million manufacturing gigs in the US dry up, along with a big pile of logistics and transportation gigs, etc.... the 'green' industry also comes to mind - govt bureaucracy and corporate boondoggle eating large sums of money that could have been spent improving the tech to make it actually competitive or cost effective...

on American nuclear, there is some progress being made, at least people are trying again. I remember a bumper sticker from the 80's, a nuclear engineer with the sticker 'Another Environmentalist for Nuclear Power' - always liked that one...

212:

Ha! I love when this happens.

Why Johnny’s College Isn’t What It Used to Be
http://www.nytimes.com/2010/08/19/books/19book.html?_r=1&ref=books

213:

Roy @192: Why does a university going under invalidate the degrees it previously issued? There's plenty of universities around the world that have closed for one reason or another, but no-one considers the alumni to suddenly not have degrees. In any case, I've only been asked to prove the existence of my degree by at my first graduate job, and that was in local government.

HR, especially in government, will instantly pull your certification to work in that position if your university goes belly up.

We had people applying for jobs with Phds, but because they did not list their high school diploma they were not even interviewed, simply because they were not "high school graduates" by HR standards. HR is insane. Don't you read the Laundry stories!

And many universities, especially the Ivy League have very, very deep pockets indeed. Harvard has an endowment of $26Bn - how many class action suits can that sort of money pay to go away?

Many universities like Harvard have endowments in the billions. They own large commercial property generating income, Medical Centers, College sports teams generating revenue(not Harvard), R&D centers, plus the land they are on is usually prime real estate that could be best used for expensive condos. The big universities have come under constant attack over the past couple of decades for not actually teaching people, yet tuition keeps going up at 2 to 3 times inflation. The rage is building in people who have to go into debt to send their kids to university with the explicit and implicit promise of an education that is worth something in the real world.

These universities are granted the right to be a law unto themselves, with everything from their own private police force, to protecting their professors despite the most outrageous acts that would get anyone working for business or government fired instantly.

At some point such blatant fraud will trigger a feeding frenzy. Remember the asbestos industry, once the bleeding starts, the sharks will start circling. If I were a lawyer, I'd be drooling right now.

214:

ajay @194: Not to mention that even if a university going under invalidated its degrees (which isn't true of course), do you really think that Intel is going to say "OMG! Our VP of Development suddenly doesn't have the MIT doctorate he used to have! We must fire him immediately!" Of course they won't. They're not insane.

As I said above, HR is insane. Don't you read the Laundry stories!

215:

The point is that people are spending more and more for less and less education. That is by definition a bubble.

In my years, I watched engineering graduates show up at work with less and less practical knowledge. I've worked with many foreign educated engineers who came here, took classes locally and were shocked by how limited the local university education was compared to back home.

I've worked with at least six Harvard graduates, some with a Masters or higher, and none of them could walk and chew gum at the same time.

I saw the inner workings of my local university while attending, and later at the Department while I supervised projects with the university and professors under contract with the Department.

As to who would be suing:

If you want to get a graduate level degree you have to act as slave labor to your thesis advisor, and put up with extortion from the committee. Your project must compliment the advisor's own work, not be something original that might threaten the prior work of members on the committee.

Interview enough people who did graduate level work, under the current system, and you will find plenty of people to start a class action suit.

Sorry to vent, but since I was able to retire before the crash(saw that bubble coming) I'm free of all that BS, and Charlie's question took me by surprise. If you still can't see the Education Bubble, then by definition, that's what makes it a bubble since the majority can't see a bubble until after the fact, and no amount of discussion will make you see it.

I'm going to go write some books now, and carefully negotiate the coming Publishing Bubble, while surviving the many other Bubbles about to pop in the next decade, like the Internet Bubble when it collapses into a two tier system of free and pay-for-premium sites. But that is another story.

216:

A bit toxic though, and volatile.

217:

Stop thinking in terms of "bubbles" and instead start considering "sinkholes", places in the political-economic landscape that have been bedrock solid for all of living memory, and yet are about to suddenly collapse.

My favorite example that has not yet happened is voice telephony. It is a Trillion (with a T) dollar business, and in another decade it will be a hundred million dollar a year business, at best.

218:

You'll excuse me if I don't take your word for it without some rational explanation as to why voice telephony will implode within a decade.

219:

Voice over ip. Skype already has more features than my phone, and for no marginal cost at all.

220:

Drone pilots are generally fairly close to their drones because they want to have the communication accurate and close.

Not really - the Predators and Reapers in Afghanistan are being flown by pilots in Nevada, at Creech AFB.

HR, especially in government, will instantly pull your certification to work in that position if your university goes belly up.

I doubt this very strongly, to be honest.

If a US university goes bankrupt, it generally loses accreditation, and its degrees become worthless - but not retrospectively. So if you're two years through your degree and the university carks it, then you can carry on studying - but your degree won't be worth much when you finished. Your best bet is to try to transfer.
But if you graduated just before the university went under, you're fine.
Similarly, if the entire faculty of Harvard goes mad next year and starts teaching a combination of creationism, crystal theory and Reiki, then Harvard might well lose accreditation the year after. But if you got your Harvard degree last year, you're fine.

221:

allynh@213: HR, especially in government, will instantly pull your certification to work in that position if your university goes belly up.

We had people applying for jobs with Phds, but because they did not list their high school diploma they were not even interviewed, simply because they were not "high school graduates" by HR standards. HR is insane. Don't you read the Laundry stories!

Yes HR is often insane, but I am sceptical that very many HR departments, even in government, are *that* insane, or won't get told not to be so ****ing insane if such policies start to affect the bottom line.

222:

Roy, precisely that scenario happened to a friend of mine applying for a UK civil service job a number of years ago. (Had PhD and other sheepskins; no problem. But they rejected him as "underqualified" because he couldn't find his original 'O' level certificate ...)

223:

Charlie, agreed. I still have my O-Level certs for precisely such eventualities, but I maintain that allynh's assertion that HR departments derecognise qualifications because the issuing institution no longer exists to be, at best, a very rare practice.

224:

Charlie,

bubbles form where capital concentrates, where perspectives focus. The current bubble is in obligations for specific countries - driving interest rates to record lows (2,9 for 30 year fixed in Germany!)

225:

the weird thing about bubbles though is that is takes concentration, focus even determination to create them - the most inherent form of a bubble: cities! Cities are stone carved bubbles. And to me it's no coincidence that the birth of cities is more or less the birth of another long lasting bubble: gold. So, bubbling ok - try to avoid the false ones

226:

I don't think you should use the word "perspective" where you also use the word "bubble." When a bubble goes up, it's frequently because the players lack perspective.

227:

I work in HR, and that sounds like a very old fashioned rule-driven department.

There are two things that can make HR seem like boneheads, at least in the US.

One is software -- because the volume of applications have increased exponentially with technology and staff has remained static or been cut, HR departments rely a lot on software screening. Depending on how the software is set, it could end up automatically discarding people who didn't "check the right box", so to speak. When you have hundreds or thousands of resumes per HR professional, they just don't have time to read them all and make decisions.

The second, in the US, is legal. Civil rights laws require evenhanded treatment of all applicants or else you can be liable for discrimination claims. So you get situations where a manager finds the perfect candidate, except for one little requirement he put in the job description. He's willing to make an exception because this candidate is perfect otherwise -- too bad. If you used that criteria against other candidates you have to use it against this otherwise perfect candidate too. And if the manager decides he wants to drop that requirement entirely, then too bad -- the job has to be reposted and everyone has to apply again. The mere presence of the requirement the first time may have discouraged minority candidates from applying so they need a chance to apply a second time. Cut any corners, and you could potentially be sued by a minority or woman for discrimination. All they have to do is show that they didn't get the job and a white man did -- you have to prove that the reason you picked him wasn't at all discriminatory.

228:

Andrew G. @227: I work in HR, and that sounds like a very old fashioned rule-driven department.

HR!!!! Noooooo!!! Run away!!!!!

229:

Charlie's question Monday triggered my work PTSD, and it's been four days of work dreams all night, and being in fugue all day. I finally pulled up the end music from The Thomas Crown Affair, and started laughing.

The Thomas Crown Affair OST (1968) The Crowning Touch
http://www.youtube.com/watch?v=yLzMiXuV-8A

Look at the end of the Thomas Crown Affair. He is sitting there, triumphant, untouchable. Here you had a bunch of very smart people who thought they knew what they were doing.

That defines the dynamics of each and every bubble, which is why they happen, and why people always ask after the fact, "Why did smart people not see the bubble and stop it."

The Thomas Crown Affair - Final Scene
http://www.youtube.com/watch?v=cOhdD_IH_vc

I've learned that you don't have to be smarter than those around you, you just have to let them out smart themselves while you go on doing what must be done. That's the only way I survived the Dilbertian Nightmare I found myself trapped in for all those long decades at the Department.

I'm much better now.

230:

@221:

Yes HR is often insane, but I am sceptical that very many HR departments, even in government, are *that* insane, or won't get told not to be so ****ing insane if such policies start to affect the bottom line.

Well, no, this a very common practice as a general rule. I know HR requirements that specify the appropriate weight and rag content of the paper used to submit resumes and woe betide the individual who does not hew to those guidelines is another instance of this general rule. And that is: anything to cut the reviews down to manageable proportions.

No one is going to want to waste time, money and manpower interviewing 3,000 applicants. So they'll cut that down by factors of five, ten or twenty by all sorts of absurd but objective requirements. The paper wasn't right. The resume format wasn't right. A proper credential, like a high school graduation certificate wasn't submitted. Etc, etc. I'm not condoning the practice or suggesting in any way shape or form that those are legitimate specifications or obstacles in the hiring process btw. I'm just saying that there is a reason for them other than "pointless, time-wasting bureaucracy."

231:

As already mentioned, you need to read 'This Time Is Different: Eight Centuries of Financial Folly'. Basically, bubbles are not inevitable. They do however, always follow periods of financial de-regulation.

The iron rule of finance is that risk and reward are linked. Higher risk = higher reward. Financial innovation always involves trying to break this rule by keeping the reward but transferring the risk to some one else. Financial regulation is always about forcing the people who get the reward to also keep the risk.

(I am assuming a perfect text book world here)

This breaking the risk - reward iron rule can take many forms. One example Dot.com bubble was VC's getting stock pre-IPO, pumping up the stock in the press, then dump the stock to the suckers in the market through an IPO. The VC's got a high IPO price for companies that never made any money but the risk was transferred at that high price to the people who bought the stock.

The next bubble will be where ever somebody figures out how to keep the reward from a high risk investment but push the risk onto some one else. It has to involve some thing real at its base, a new tech, a new market, then it gets a boost through the press, and usually a govt stipend through favored taxes or protection. But always the real power behind the bubble comes from the people who figured out how to keep the reward while getting rid of the risk.

232:

You don't surprise Me Charlie .. I worked in a Tech Role in a Northern University before I bailed out at the turn of the century - using the early retirment Option that we had in the UK Higher Education System at the turn of the 20th century - on account of haven been driven beyond the borders of Madness by such like things.


Your Fault is not that you go too far but that you don't go far enough .. no doubt on the grounds that people just wouldn't Believe it.

Honest, BOSS ..I was Good at this sort of Stuff, had an informal client list, and had such experiences as having a pack of Academic Lawyers greeting me after a Departmental Meeting with glad crys of " If you did Nothing Else in your Career then at least you Have ENSURED that That Bitch will NEVER become Head of School! " it was the Female Lawyers who were most Adamant on the BITCH part of the Description and they also said.. " Where did YOU .. with a little underpinning of little Tech Person .. Learn to DO cross Examination! I didn't say ' Nero Wolfe via Perry Mason plus rather too many case studies via my closed circuit TV system ' but rather asked why THEY hadn't taken part in the Right Behind You Stuff in a GOOD Cause?

They said," Ah that's because WE have Careers and You, Evidently, don't and also YOU aren't frightened of Them are you? ... and they just can't figure out WHY this should be SO.

Basically this was SO because by this time I was Madder than a Bag of Cats - second bout of, un-advertised and cunningly concealed, Clinical Depression - without having lost any of my ability to reason and use intelligence Sourses .... I just didn't Care and was intent on toasting the powers that be on both sides.

233:

Bond bubble fear returns as investors flee stocks

By BERNARD CONDON, AP Business Writer – 2 hrs 38 mins ago

NEW YORK – Maybe bonds aren't so dull after all.

Bad economic news sent investors out of stocks and into U.S. Treasurys this past week, extending a rally that has defied some of Wall Street's best minds, and, some say, logic.
...

http://news.yahoo.com/s/ap/20100822/ap_on_bi_co_ne/us_wall_street_week_ahead;_ylt=A2KIKu9dnnFMG8QA7QhFr7sF;_ylu=X3oDMTJ2c2dja3U1BGFzc2V0A2FwLzIwMTAwODIyL3VzX3dhbGxfc3RyZWV0X3dlZWtfYWhlYWQEcG9zAzEEc2VjA3luX3BhZ2luYXRlX3N1bW1hcnlfbGlzdARzbGsDYm9uZGJ1YmJsZWZl

234:

paws4thot wrote:



IMO, and based on limited understanding:-
1) AGW may or may not be real, but as presently stated is based on some very bad science and statistics. For example, try finding the Medievil warm period and the "Little Ice Age" in the AGW graphs. Now try comparing the time of the switch from the use of derived dendritic temperature (hence in open country) to city centre thermometric temperature with where the "hockey stick" kicks up. Now try comparing the temperature against time charts for Mars and Earth.


OK, let's assume that AGW is completely and totally wrong, that it is based upon bad science and that the scientists who are pushing it really don't understand how the dynamics of our atmosphere work. Why does this matter? Firstly the Earth is getting warmer, you'd have to be completely fucking insane to deny that, (fortunately for Exxon/Mobil and the coal companies out there there are lots and lots of completely fucking insane teabagger conservatards out there who are prepared to do just that. Every time it snows in the winter these fucktards say "Ha, ha, what about that global warming. Look there's snow on the ground. Al Gore is a fag". And when summer temperatures increase and you have heat waves like the ones the American South suffered through a few years back they just turn up the air conditioning, at least until the power grid goes down.) The earth is getting warmer, even if humanity isn't the cause why does anyone think that pumping a gas that traps heat into the atmosphere is a good idea?


But for the sake of this argument let's assume that AGW is invalid (and let's also ignore the existence of American conservatives, who are mentally retarded as any inbred AKC registered Chihuahua). Does anyone really think, anyone who isn't completely fucking stupid or insane (you know, like American conservatives) that digging up coal and burning it is a good thing? Aside from the carbon dioxide it's nasty, filthy, dirty polluting stuff that causes massive pollution problems even before you get it to a power plant. And even if you assume that CO2 isn't a problem you still have massive problems with the waste that burning coal generates. Coal ash is low-level radioactive waste, it's nasty stuff and hard to store. You may or may not want to live by a nuclear power plant or have to deal with windmills but you definitely don't want to live next to a coal slurry pond, as the folks in Roane, Tennessee found out a few years back

http://en.wikipedia.org/wiki/Kingston_Fossil_Plant_coal_fly_ash_slurry_spill

So coal is nasty dirty stuff. If we don't care about CO2 then natural gas is great, but it's scarce and hydrofracking causes lots of nasty water pollution, and please don't bring up methane hydrates because no one knows how to economically extract methane from them. Then there's oil. Even if we forget about the CO2 generated when you burn oil there's still the fact that getting the stuff out of the ground causes lots of pollution (Exxon Valdez, Gulf oil spill) and that the countries that have massive quantities of oil are run by total assholes (Iran, Saudi Arabia, Russia, Venezuela) who we really don't want to give money to because they just use it to stay in the asshole business. And for anyone who thinks regime change is the solution check out how well that worked in Iraq.


So even absent the threat of AGW fossil fuels cause a lot of pollution and using them means that we're sending billions of dollars to some of the biggest assholes on Earth so that they can stay in the business of being assholes, treating their citizens like shit and funding madrassas to train the next generation of 9/11 terrorists or propping up the sclerotic Castro regime. So it would seem like a smart thing to do to minimize our use of fossil fuels so we can avoid disasters like the Roane coal slurry pond, or having to destroy every mountaintop in West Virginia or having to give billions of dollars to the asshole regimes in Iran, Saudi Arabia, Russia and Venezuela.


But there's another issue here. Let's assume that AGW is a myth. Fine, let's assume you're on a starship headed towards an unknown destination. There's a big box over in the corner labelled "life support". You have no idea how this box works, it's a fucking mystery to you, but you do know that if something goes wrong with it that you'll die. Do you A) try to minimize doing things that might fuck up the operation of the mysterious black life support box or B) beat on it with a sledgehammer. Even if the current models of AGW are wrong who thinks it's a good idea to fuck with the atmosphere and our climate by pumping gigatons of CO2 into the system? Again, the planet is getting warmer, so why does anyone think that it's a good idea or inconsequential to pump gigatons of CO2 into the atmosphere?

235:


A news item for those who see an education bubble:


LA unveils $578M school, costliest in the nation


http://news.yahoo.com/s/ap/20100823/ap_on_bi_ge/us_taj_mahal_schools

236:

@ 234
NO-ONE was killed in the Tennessee slurry-spill.

Ever heard of ABERFAN ??
Pictures HERE
Read and weep - the price of coal.
I remember hearing (it may be avilable on BBC archive) the account, given 40 years later, of the last child alive out of the Pant-Glas primary school.

237:

Major
US dollar renormalises to balance imports and exports. Eg, the US dollar falls to the point where we can sell enough cars, computers, and clothes, to pay for our crude oil, coffee, and chrome ore imports, in competition with China.
US real estate renormalises as metrocoastal areas lose residents (and real estate values) to the flyover areas as import replacement sucks people into resource areas and cheap housing for factory worker areas.

Minor
More paper gold sold than physical gold exists in the world so counterparties can't pay off on what they owe you.
Collapse of US tax revenues removes money available for government and government contractor jobs, which collapses the return from a college degree over a high school degree.

238:

@234 - And if reducing CO2 production is beating on the life support with a Stilson? I'm serious; with our current understanding we can't say whether doing nothing or doing something is the action that will potentially break the life support in the analogy.

239:

@238 - If you're going to use analogy, then I think it's better to consider the status quo ante. In the starship, the status quo ante is of the life support working, and nobody having hit it yet. In the case of the atmosphere, it's one before the addition of the CO2 emitted by various human activities. In both cases, we know it was working.

We can be fairly sure the starship is unlikely to perform better with the Stilson hammering. If it does actually require it, then the occupants are probably stuffed.

In terms of emissions reductions, we're unlikely to be able to return to pre-industrial levels any time soon. What we can hope to do is to to drum a little lighter and hope that's enough.

240:

Ho, Hummmm ..note " Phelps suggests that investors worried about a stalled recovery should stick to stocks of big, conservative companies with little debt and fat dividends. Though you can still get hurt if their stocks fall, at least the dividends will help compensate. "

In my modest investment portfolio I have LLoyds Bank which was as staid and dull a dividend paying bank as you could have wished for, with many financial pundits reproving them for their lack of adventure in the Great Boom ... so much so that when the bank meltdown occurred it was the only UK bank that was in a stable enough position to be levered by the government into a take over of an extremely unstable ... self certified mortgages and all that sort of thing ..Halifax Bank of Scotland, which in its turn led to the said staid bank being pushed into the U.K. Governments Bank Bailout and then being obliged to suspend its dividend. Nope ..dividends aren't safe and even dull companies in dull marketplaces have been tempted into leveraged take overs using 'cheap ' loans during the Bank Bubble.

Higher Business Executives just LOVE doing DEALS .. much Dramatic Posturing, an entourage of Assistants, Executive Jets, many breathless news reports in the media and Loads a Money. Often C.E.Os remuneration packages can only be secured and augmented if they do Merger and Acquisition... so whats not to Love?

As for the ..just call me James ... BOND market bubble?


Theres an interesting piece here ...

http://www.bloomberg.com/news/2010-08-22/bonds-showing-no-economy-spoils-for-republicans-as-rates-point-to-recovery.html

Of course there is some sort of election due real soon now over in the US of Aliens which does make it hard to peer through the smoke of political economic warfare but I think that the early phases of the Great Recession are still un-winding and its this present Bubble that, over the next ten years, will push forward any future Bubble into the indeterminate future.


I understand from a recent piece in 'The Huffington Posts ' ' When Wall Street Rules You Get Wall Street Rules ' that ...

" The reason that there was little interest in cracking down on the housing bubble is that Goldman Sachs, Citigroup and the rest were making a fortune from the financial shenanigans that fueled the bubble. Former Treasury Secretary Robert Rubin personally pocketed over $100 million from this fun. Why would they want the government to rein it in? "


Why indeed?

241:

steveg@126, you know, you COULD try sticking to the arguments instead of bringing out the insults.

No. When I wrote browser language, I meant browser language, ActiveX, as you realized and agreed with me on. It would've helped if I'd remembered the name in my comment, though.

Now, personally, I find MS' fix, needing to click a permission box absolutely every time you visit a page with any kind of web script, too annoying to consider helpful. I'm just not understanding what would've been so hard about copying their competition and letting you disable scripts entirely, and having per-language controls? That was as of IE7, ISTR; if IE8 has a real fix, I'd be glad to hear it.

At worst they know security is a massive *financial* risk to them

You might try reading a Windows license sometime. It sez you can't sue them for anything and several other things, almost, but not quite as bad signing away your firstborn. It seems to work, because we HAVEN'T seen massive lawsuits over the problems I mentioned or earlier serious bugs for the decades of MS' existence.

And they'd love to fix those gazillion infected XP. They have a well documented solution for that OS: *selling* you a copy of Windows 7.

Please explain what does Windows 7 does to make crackers' lives hard. What will Windows' new security system do beyond training users to click YES quickly, without thinking?

And, if it really works, you should have no trouble finding evidence.

242:

Jon said

When I wrote browser language, I meant browser language, ActiveX,

ActiveX is not a language; it's an interface system that allows you to attach lumps of code to browser activity. You can write ActiveX controls in a wide range of different languages. It's a bit like the difference between English (a language) and HMRC (an interface system for giving money to the British Government).

(Also, you seem to have accidentally jumped thread:)

243:

I think mobile *apps* are a bubble, as platform proliferation will drive 90% of it back to the web.

244:


" You might try reading a Windows license sometime. It sez you can't sue them for anything and several other things, almost, but not quite as bad signing away your firstborn. It seems to work, because we HAVEN'T seen massive lawsuits over the problems I mentioned or earlier serious bugs for the decades of MS' existence. "

I am NOT a lawyer and so I'm not about to stamp about very hard, or very expertly, in this particular Muddy Pond ... but, it is worthwhile noting that US of Aliens LAW isn't the same as other Nation States Laws and that it may well be that there are sufficient Professional Lawyers about who will Challenge The Micro Soft interpretations of THE LAW just for the Hell of It ... and for the Prestige and Monetary Gain to be achieved by successfully litigation against the big Beasts of I.T.


Over HERE in the U.K. we have this thing called ... " The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs) protect consumers against unfair standard terms in contracts they make with traders. The Office of Fair Trading, together with certain other bodies, can take legal action to prevent the use of such terms.

The UTCCRs can protect consumers from terms that reduce their statutory or common law rights and from terms that seek to impose unfair burdens on the consumer over and above the obligations of ordinary rules of law."

http://www.oft.gov.uk/about-the-oft/legal-powers/legal/unfair-terms/


I wonder just how legally invulnerable M.S. is ?

Could it be that M.S. simply runs away behind an Ink Cloud when confronted on the stage of International Law and that their only safety lies in the US of A ?

Just a stray thought rather than an invitation to joust with American Lawyers.

245:

In theory, US contract law annuls any clause of a contract that has one party or the other explicitly waiving any right. So, the clauses requiring 'binding arbitration' instead of a judicial court proceeding are, technically, unenforceable if one side or the other chooses to bring the other to court. (In practice, I do not believe this has been tested in court because by the time the parties come before a judge, whether binding arbitration has been attempted or not is usually the least of the items on the minds of the lawyers.) However, EULAs in general have not been brought to court trials; the noteworthy court cases involving the "Big Beasts" have generally been over practices such as tying the browser to the OS and monopolistic practices(for both of which MS was soundly beaten about the head with wet newspapers by the EU.) The Beasts have a vested interest in maintaining the image that the EULA is a valid contract, and have not come against anyone with enough wherewithal and desire to fight it out over the legitimacy of the EULA in any court.

IANAL. I don't even portray one on TV. I may be very wrong and so I welcome corrections.

246:

The United States has the Uniform Commercial Code, which covers some of the same things that the UTCCRs do.

247:

China has a lot of appreciation to come. Big legitimate appreciation.

It's going to get swamped by the huge structural problems.

Most bubbles start as legitimate investable events. People are crazy for beanie babies/tulips/real estate. It appreciates. Speculators come in, speculators make big money. Ordinary folks see the speculators making big money, they get greedy and they become the dumb money.

I pick the emerging markets as the next bubble precisely because there are legitimate opportunities, but they are hard for outsiders to parse.

When the market is unregulated and has no oversight, bubbles and scams are natural. What do you want to bet the market in china is regulated by a bunch of folks who are hard to corrupt and smart and motivated? And omniscient.

It's precisely the outstanding returns from legit investments that jumpstarts the bubble.

When someone figures out a way to make a steady 80% return from WoW, you'll get your game gold bubble toot sweet.

248:

This is a complicated area, theoretically and practically. A contract with a blinding number of small ink terms can be characterized as an adhesion contract, especially when applied to unsophisticated parties who are trying to make a simple purchase or similar transaction. Contracts do allow people to explicitly waive certain of their rights. However, the courts are not about to waive their rights to jurisdiction over matters they want to have the ultimate say on. Hence, abritration clauses are not necessarily going to be enforced and even if there is arbitration, the court can always take the case afterwards if either party is dissatisfied with the process or the results.

249:

Matt Katz @247: Ordinary folks see the speculators making big money, they get greedy and they become the dumb money.

Exactly. I've always said that if you want to understand what a bubble is think of plate spinning; watch these videos.

This guy knows what he is doing, it's a great act.

Erich Brenn "Plate Spinning" on The Ed Sullivan Show
http://www.youtube.com/watch?v=Zhoos1oY404

That's how things start, with people thinking they are in control then getting away with it, so everybody thinks it's easy and try it themselves and you get this.

Charlie Callas Spinning Plates
http://www.youtube.com/watch?v=FK4nh5I0jpE

Yes, Callas was doing a parody, sadly the "dumb money" is made up of smart people who are absolutely sure that they are the smart ones.

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