financial bubbles

[mathman]

Throughout history there have been many instances where some the valuation of a product goes through the roof for no good reason - the Dutch tulip bulb (1600 's) is one of the most famous examples.

A book just published (The Great Beanie Baby Bubble) described a more recent (1990's) example. The book is reviewed in the current (Mar 22, 2015) issue of the NY Times Book Review.

What struck me was another book review in the same issue (The Age of Cryptocurrency) describing bitcoins. My reaction was - is this another bubble? To me bitcoins have no intrinsic value - so what happens when other people start thinking the same way?

 

[joepistole]

Throughout history there have been many instances where some the valuation of a product goes through the roof for no good reason - the Dutch tulip bulb (1600 's) is one of the most famous examples.

A book just published (The Great Beanie Baby Bubble) described a more recent (1990's) example. The book is reviewed in the current (Mar 22, 2015) issue of the NY Times Book Review.

What struck me was another book review in the same issue (The Age of Cryptocurrency) describing bitcoins. My reaction was - is this another bubble? To me bitcoins have no intrinsic value - so what happens when other people start thinking the same way?

No currency has "intrinsic" value these days - whatever that term mean. If crypto currencies worked there would be no need for central banks. It's an interesting idea. But there is a need for central banks as most recently demonstrated by The Great Recession. There is a time and need for expansionary monetary policy and there is a time and need for contractionary monetary policies. Crypto currencies are based on an incorrect notion that is correcting and therefore monetary policy is inconsequential. And that is simply incorrect. It's an interesting diversion and cool for the geek community and has value for criminals who want to evade government snoops and the right wing nut jobs who complain that normal currencies lack "intrinsic" value but have no qualms about buying a piece of computer code currency for its "intrinsic" value.

Crypto currencies will fill a niche but they will never replace major currencies and yes people will get burned along the way, they already have been.

 

[Syzygys]

You are correct that cryptos are pretty much nothing but ponzis, specially the newer ones, although the original bitcoin has a lots of bitcoin characteristics.

Beside that it has lots of technical failures, let's just address the people sudden realization that it is really just worthless numbers on a computer. Well, then people would start to sell it and the price collapses. But because bitcoin had like 3-4 always bigger all time highs, people are going to believe in it for quite a while until scams and government sanctions eventually kill it.

To your question: Is this just another bubble? Well price went from $1200 to $160 so you tell me....

 

[mathman]

Currency may not have "intrinsic" value, but as long as governments accept it for tax payments, it has value.

 

[sculptor]

Hyper inflation happens
and
the federal reserve seems incompetent on a good day, and they have very few good days.

When they set out to burst a bubble, market crashes followed. And, all the talk about a "soft landing" didn't actually come to pass.
..............................
My mother's last husband smuggled jews out of germany(one at a time--in the boot of the general's car when he was sent with a diplomatic pouch) for 1,000 marks apiece, then after the war, a kilo of coffee cost 1000 marks, so he risked his life for about 2 pounds of coffee. Helluva bargain.

If your net wealth is denominated in any one currency, then, sooner or later, you're screwed.

 

[joepistole]

Hyper inflation happens

Ok, where has it happened and why did it happen? Has it happened in The United States?

and
the federal reserve seems incompetent on a good day, and they have very few good days.

And why does the Federal Reserve seem “incompetent” on a good day? Do you know what the Federal Reserve does? I don’t think you do. So how could you know if the Fed seems incompetent?

When they set out to burst a bubble, market crashes followed. And, all the talk about a "soft landing" didn't actually come to pass.

They set out to burst a bubble? When? And the soft landing didn’t actually come to pass? Oh please do explain.

..............................
My mother's last husband smuggled jews out of germany(one at a time--in the boot of the general's car when he was sent with a diplomatic pouch) for 1,000 marks apiece, then after the war, a kilo of coffee cost 1000 marks, so he risked his life for about 2 pounds of coffee. Helluva bargain.

And how is that relevant?

If your net wealth is denominated in any one currency, then, sooner or later, you're screwed.

Well, I guess that depends on your individual circumstances and what you mean by screwed. If you are Russian, you are getting screwed with but it isn’t the central bank screwing the Russian people, its Putin who is screwing his people. The Russian central bank is trying to enact responsible monetary policy in a dictatorial country where everything is subordinate to Putin’s will.

 

[sculptor]

Ok, where has it happened and why did it happen? Has it happened in The United States?

And why does the Federal Reserve seem “incompetent” on a good day? Do you know what the Federal Reserve does? I don’t think you do. So how could you know if the Fed seems incompetent?

They set out to burst a bubble? When? And the soft landing didn’t actually come to pass? Oh please do explain.

And how is that relevant?

Well, I guess that depends on your individual circumstances and what you mean by screwed. If you are Russian, you are getting screwed with but it isn’t the central bank screwing the Russian people, its Putin who is screwing his people. The Russian central bank is trying to enact responsible monetary policy in a dictatorial country where everything is subordinate to Putin’s will.

As re/ the USA: Do you know of the stagflation of the 1970s wherein many savings of the elderly were degraded beyond salvation----------resulting in many retired people living on cat-food and expired produce?

The fed has the task of responding to events in advance of the events------which ain't easy. eg: When Greenspan took over from Volker, he raised raits one more time and caused the crash of '87--------then when the housing industry was faltering, he raised rates again (pricking the bubble) he did it again--one more fed rate hike and -crash

Currencies values reside in a fantasy land at the whim of the markets, and those who would control their value have agendas or biases which preclude objectivity.

 

[joepistole]

As re/ the USA: Do you know of the stagflation of the 1970s wherein many savings of the elderly were degraded beyond salvation----------resulting in many retired people living on cat-food and expired produce?

The economic malaise of the 70’s was brought about by the Arab Oil Embargo. That had nothing to do with the Federal Reserve. The Fed acted reasonably by expanding the money supply and in doing so prevented a steep and prolonged recession. You cannot blame the Federal Reserve for the Arab Oil Embargo of 1973 and the energy crisis of 1979. The Arab Oil Embargo was retaliation for US aid to Israel.

The fed has the task of responding to events in advance of the events------which ain't easy. eg: When Greenspan took over from Volker, he raised raits one more time and caused the crash of '87--------then when the housing industry was faltering, he raised rates again (pricking the bubble) he did it again--one more fed rate hike and –crash

Well actually, the Fed is responsible for much more than that. Without the Fed checks won’t get cashed, credit cards would not get processed, ATMs won’t work and more banks would go belly up. The Fed has many responsibilities. The Fed Open Market Committee is the most visible function of the Federal Reserve. The Open Market Committee sets monetary policy. Only recently with the passage of Dodd-Frank has the Fed become responsible for larger issues like “systemic risk”.

And the crash of 1987 had nothing to do with the Fed either. The market was up 44%, it was clearly overvalued. Coupled with disturbing news from the Middle East, the market was ripe for a correction. The Fed cannot predict exogenous events like missile attacks on US shipping, no one can. The Fed doesn’t have a crystal ball.

http://en.wikipedia.org/wiki/Black_Monday_(1987)#Causes

Currencies values reside in a fantasy land at the whim of the markets, and those who would control their value have agendas or biases which preclude objectivity.

Well, this is a free market society. Except for monopolies and oligopolies, markets determine pricing in our society. A currency is like any other commodities. It is only worth what s someone is willing to pay for it. That’s what a free market is and it applies to goods and services as well as currencies. But that doesn’t mean currency values reside in a “fantasy land”. Currency value is very real.

 

[iceaura]

When Greenspan took over from Volker, he raised raits one more time and caused the crash of '87--------then when the housing industry was faltering, he raised rates again (pricking the bubble) he did it again--one more fed rate hike and -crash

The Fed had little to do with the dotcom bubble or the housing bubble, or the various other asset bubbles afflicting this or that sector of the US economy over the years.

All bubbles pop, central bank or no central bank. Best not to abet their formation.