There Was Never A Bubble That Didn’t Pop

There’s a lot of money out there.

And it has to go somewhere, said one hedge fund manager last week.

Where it’s not going, for sure, is into American savings accounts.

Last week, a report from the Commerce Department told us what we already knew – that Americans are saving money at a lower rate than at any time in the last 73 years. Yes, the last time Americans stored away so little of their earnings was back in the deepest depths of the deepest depression the country ever had. That was when a quarter of the workforce was unemployed… and when most women weren’t even counted in the workforce. In other words, the last time savings rates were this low it was because of a major, major financial setback. People couldn’t save back then; they had no money. Now, they could save… they just don’t want to.

Where the money IS going is easier to figure out.

The Dow took a small step back… more like a hesitation than a back-step… and remains in record-high territory, thanks to the U.S. Federal Reserve.

But the NY-London financial industry is not the only culprit.

Seventeen years after the collapse of the Nikkei Dow (with Japan’s key lending rates still down near zero and the Nippon economy growing) the Bank of Japan splashes around credit as if it were still fighting deflation and recession. What’s a hedge fund to do when it’s offered all that free money? The same thing as a homeowner. Take it.

More than $1 trillion of mortgage debt was added in the United States last year – thanks largely to low lending rates worldwide. And the carry trade – where speculators borrow yen in order to buy higher-yielding assets – has risen to an estimated $1 trillion in naked exposure.

Where does all that money go? As our anonymous source put it, it has to go somewhere.

How do you say ‘bubble’ in Mandarin…or Hindi? Stocks in China, Singapore and India are all exploding to the upside. The Chinese money supply, measured by M2, is rising at a rate of 16.9%.

And for now, at least, this wash of cash and credit shows no sign of ebbing. In fact, even in the United Kingdom, New Zealand and right here in Australia, where property prices seemed to have peaked out a year ago, consumers did not stop spending… they just kept borrowing more!

And we keep turning up our warnings:

…you can’t get something for nothing…

…never was there a bubble that didn’t pop…

…and the force of a correction is equal and opposite to the deception that preceded it.

But who listens? Who cares? We are in an Age of Mammon.

People want money, success, stuff… and they want it now.

And they’re going to get it… as we keep saying… good and hard.

But maybe not today… or tomorrow.

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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