Everyone knows by now that bubbles mean capital misallocation. Look around you and you can see misallocated capital everywhere. Capital misallocations occur whenever anyone borrows money and builds a business on a false premise. In an era of phony inflated money supply, nearly all economic premises are false ones because the cost of capital (as money) is artificially low.
Example: big box electronic retailers. These stores popped up like mushrooms all over the U.S., to feed an unsustainable consumer craving for useless consumerist Chinese electronic junk.
(Now-empty) store: misallocated capital.
(Idle) factory to manufacture useless consumerist Chinese electronic junk: misallocated capital.
(Unused) massive 4-lanes-each-way suburban road to get to shopping center where big box electronics retailer (and other similar retailers of useless consumerist Chinese junk) is located: misallocated capital.
(Anchored) ships to transport endless container loads of useless consumerist Chinese junk: misallocated capital.
(Deserted) dock facilities, piers, cranes, trucks, rail lines and rail cars, regional warehouse distribution centers for endless streams of useless consumerist Chinese junk: misallocated capital.
See? We had plenty of capital, but rather than reinvest it in productivity, enabling the production of still more capital, we wasted it on consumerism, and then ate the rest of it by consuming it rather than reinvesting it. Now we will have to replenish capital by SAVING MONEY AND NOT SPENDING IT ON USELESS CONSUMERIST CHINESE JUNK.
IMO an economy where saving is rewarded and which continues to plow resources back into the productive process is actually deflationary; prices fall and standards of living rise. Hard for banksters to make double-digit returns in such an environment. Enter the Federal Reserve.
Bubbles also mean overly-confident consumers. 99.99% of consumers don't follow the financial markets for hours each day; they are too busy doing wage-labor and picking their kids up from daycare. Of course, these consumers experienced the phony joy of bubblenomics, and borrowed and spent their way into oblivion. Should they have known better? In many cases, probably. But given the ever-inflating environment, can consumers be blamed for overconsuming when businesses were misallocating so much capital? Didn't consumers merely mimic the environment they were living and working in?
Would anyone care to guess to where we should trace the origins of that environment?
Today I received from my Mortgage lender a HELOC offer. The kicker? A variable rate capped at 18% (usury). I might as well move to Latvia and get a mortgage denominated in CHF. And because I do follow the markets very closely, I am aware of that fact. But how many others are?
How log will we allow this system to continue?
Disclosure: The author is not a financial professional. Please DYODD. The author is long precious metals and various other dollar short instuments and hedged by a substantial cash position.