Letter: Beware the next economic bubble

Since the end of World War II 68 years ago, the American economy has had a series of boom (“bubbles”) and bust cycles ... and we’re headed for the largest and last great bubble of our lifetimes.

In order to win that war, our country geared up for massive war machinery production and that production created the first of four great bubbles. During those war years, many items were rationed to the public in order to focus on production of war material. So when WWII ended and war machinery production was no longer needed, there was a huge demand for all consumer goods which were rationed and denied American citizens during the war.

That pent-up demand created the second boom (bubble) we now call “consumerism.” After everyone had all those thing that were denied them during the war, the economy went into a recession (bust). Then we had the third boom (bubble) which was a second leg of the second boom and led by technology which ended in the dot.com stock market bust.

Then, we had the fourth boom (bubble), which was the housing boom that resulted in what we call “the Great Recession” — for which we can no longer blame George W. Bush because he wasn’t responsible for it in the first place and because it has lingered on for so long. But that’s a subject I’ve already written about for those who can both read and comprehend.

We’ve recently embarked upon a fifth boom (bubble) which is currently developing in the U.S. stock market and, like its predecessors, this bubble will surely burst.

Why, you ask? Because the current record-setting gains of the stock market are unsustainable. They’re unsustainable because the structural conditions which caused the last bubble to burst have not been resolved and because the Federal Reserve and Treasury are pumping $84 billion per month into the economy to try to create jobs and GDP growth. So, what happens when the $84 billion pump stops? That’s the needle that’ll puncture that bubble.

You see, an $84-billion/month pump is unsustainable by any nation and especially one with a $17 trillion debt with no end in sight. So there you go ... another bubble bursts! And if the pump doesn’t stop soon, we will become another Greece or Argentina.

In other words, ladies and gentlemen, like a goldfish in a bowl, the United States of America has been living on a series of bubbles.

Good luck, everybody.

Thomas Gandolfo

retired petroleum landman

Lakeland

Comments

1) Comment by dawgtired - 18/03/2013

@BigHug It's $84 billion a month. With 315.5 million people in the U.S., that equates to $266 per month per person or $3,195 per year. For a family of 4 that's $12,779.43 a year. I already pay enough in taxes to support the government..

2) Comment by InPVille - 18/03/2013

@Diogenes: How can 800,000 federal employees be furloughed when there was no cut in the amount of the federal budget from last FY only less of an increase in federal spending unless this is what the Government wanted to do to create the maximum scare among those who can't pay enough attention when other adjustments could be made. Seriously!. As you should know Keynesianism isn't the only economic theory in existence. I am certainly correct that the supposedly multiplier effect never kicked in from Obama's first stimulus. Nor am I incorrect that for nations with a large amount of debt a number of economists say stimulus will not work. It may be one thing for the government to pump money in if they haven't been spending themselves into debt before. That isn't what happened here. You are just making the case that the Democrats will never agree to cutting the size of government. It must always increase. Eventually the house of cards will crash. The conditions that allowed to boom U.S. years after WWII doesn't exist today. Every western nation is losing population. As the population ages and more and more of a burden is placed on the fewer and fewer of working age, the whole thing become unsustainable.

3) Comment by Diogenes - 18/03/2013

@InPVille: Your analysis of Keynesian economics is so flawed it is difficult to find a place to start. All I can do is to suggest you take a course in macroeconomics and then come back to get an economics lecture. While I agree that President Obama suggested the idea of automatic cuts so harsh and onerous that Congressional Republicans would set aside their ideological agenda for the good of the nation, it is the Congressional Republicans that allowed the Sequester to happen. In fact now they are bragging about it. As for where is the catastrophe? Just ask any of the 800,000 federal workers being furloughed if it is catastrophic or not.

4) Comment by InPVille - 18/03/2013

@Diogenes: As the following youtube video of Democratic Senator Max Baucus shows the idea of the Sequester came from the White House. Congress passed it. President Obama signed it. The government is already pumping money into the economy and spending tons of borrowed money. If government spending was capable of getting the economy back on track, it would never have gotten off track to begin with. The economic theory behind the idea that government spending is necessary to spark an economy is flawed. If government doesn't spend money, it doesn't mean that the money will sit idly by outside the economy as anyone with even a rudimentary knowledge of the subject should be able to recognize. [1.] People who have wealth do not, like Scrooge McDuck, pile it in huge rooms to admire as it sits idle. They invest the money or it winds up somewhere in the banking system where it is put to use somewhere in the economy through loans and such. [3.] Also government has a bad track record deciding where to "invest" money to help the economy grow. There is more waste when government is doing the spending than when people or enterprises spend their own money. So any beneficial economic impact from government spending is less. [3.] It is not possible to say that Government spending and economic growth move in the same direction at the same time. [3a.] After WWII U.S. Government spending by all measures went into steep decline. The economy didn't tank as predicted by Paul Samuelson and other Keynesian economists. The economy soared. [3b.] Many Keynesian style stimulus spending plans were tried by the Japanese government when that country's economy went into decline in the 1990s. None of it worked. Japan has still not fully recovered. Numerous other examples can be cited. [4.] Lastly, if the sequester was a lemon, it was known to be a lemon when the idea was hatched in the White House, debated in Congress, and signed by the President. Barack Obama quote: “Already, some in Congress are trying to undo these automatic spending cuts. My message to them is simple: No. I will veto any effort to get rid of those automatic spending cuts to domestic and defense spending." No other implementation of spending cuts has been agreed to since the President took this position. But now its all a catastrophe?!?!

5) Comment by Diogenes - 18/03/2013

The current stock market boom might be a bubble, but the factors that are causing the stock market boom has nothing to do with a “$84-billion/month pump” by the US government. Rather the reasons Wallstreet is feeling bullish is because US corporate profits and cash reserves are at historic highs; inflation is very low; and interest rates are at historic lows. I an odd way I wish Mr. Gandolfo was correct, because a good dose of federal spending designed to get people back into the job market is just what this economy needs, rather than the stupid “Sequester” the Republicans inflicted upon the USA.

6) Comment by InPVille - 16/03/2013

@Spudaroonski: There are a lot of reasons why someone can win an election by a wide margin. Some of them are legitimate. Some of them are not. However, I could not fail to notice you did not dispute but simply ignored the economic and social indicators I listed and provided links to which show the change that occurred under Chavez was not for the better. Quite the opposite. By your statement on this thread one can only conclude you believe we would be better off if our politicians gave us water rationing, food shortages, a devalued currency which makes it harder for everyone and especially the poorest people to purchase needed items even it they are available, and chronic power outages.

7) Comment by agagent - 16/03/2013

All the feds’ printed money must go somewhere, and there are few good choices, so the stock market gets a significant amount of this monopoly money. It is a bubble because there is not enough economic activity to supporting the increased value of the stock market.

8) Comment by agagent - 16/03/2013

Here is another bubble government interference has helped to create: the college loan bubble. There is about $1 trillion in outstanding college loans and the default rate is increasing. The government-run program has significant fraud, and money is being loaned to some who have little chance of repaying their loans. Sounds familiar? Our recent college graduates have had difficulty to finding good jobs. This bubble may get worst unless the economy improves.

9) Comment by agagent - 16/03/2013

Here is another bubble government interference has helped to create: the college loan bubble. There is about $1 trillion in outstanding college loans and the default rate is increasing. The government-run program has significant fraud, and money is being loaned to some who have little chance of repaying their loans. Sounds familiar? Our recent college graduates have had difficulty to finding good jobs. This bubble may get worst unless the economy improves.

10) Comment by Spudaroonski - 16/03/2013

InPVille, if Chavez was this evil monster that you obviously think he was then how do you explain him winning election after election by huge margins that Jimmy Carter said were the fairest in the world? He won these elections easily because the working people and poor people of Venezuela loved him. Of course the 1 per centers hated his guts because he made sure that Venezuela's oil wealth wasn't controlled by a handful of elites and he used that wealth to improve the lives of all Venezuelans not just a select privileged few. While we have a president that gives lip service for hope and change Chavez actually delivered on it. Do I think Chavez was a saint? Of course not but he was better than 99.9% of the corporate owned prostitutes we have sitting in our congress now.

11) Comment by InPVille - 16/03/2013

@Spudaroonski: "Know what else is unsustainable Thomas? Capitalism." Of course Spudaroonski based on a recent post of his would have us emulate the late Hugo Chavez. What Chavez offered misery is probably sustainable. But I wouldn't recommend it. In recent years, The 14 years during which President Chavez was in power saw great improvements in the lives of the people of Venezuela. Just kidding! ! ! Here is what really happened. -[**]- "We must inform the nation that 2011 will end as the the most violent year in the nation's history," the Venezuela Violence Observatory (OVV) said in a news release. -[parag]- Its figures - based on research by several Venezuelan universities - suggest that in 2011 Venezuela had a murder rate of 67 per 100,000 inhabitants." It was about 25 per 100,000 before Chavez.: http://www.bbc.co.uk/news/world-latin-america-16349118 -[**]- currency devalued 66% since Chavez assumed power in Venezuela: http://www.reuters.com/article/2013/02/11/venezuela-currency-devaluation-impacts-idUSL1N0BB5PV20130211 -[**]- water rationing & power outages: http://news.bbc.co.uk/2/hi/americas/8467339.stm -[**]- Food Shortages: http://news.bbc.co.uk/2/hi/business/4599260.stm -[**]- Venezuela Inflation rate at 27.6% in the highest in all of Latin America: http://www.huffingtonpost.com/2012/01/05/venezuela-annual-inflation-rose-2012_n_1187462.htm -[**]- One thing about misery, it is sustainable.

12) Comment by 8point6 - 16/03/2013

www.cnn.com/US/9812/16/clinton.iraq.speech/

13) Comment by Spudaroonski - 16/03/2013

Know what else is unsustainable Thomas? Capitalism.

14) Comment by Bighug - 16/03/2013

Very interesting. It takes only $84 billion to keep the economy going well? That comes to less than a dollar per day per citizen. I'm willing to pay my part. Too bad we don't have Bush in office. Maybe he could come up with some more lies like he did to get us into war in Iraq and do more good like that did. He could just throw a dart at a world map to pick a country, and he had plenty of advisors to help with the lies.