August 2011
Intermediate to advanced
320 pages
8h 43m
English
Preface to the Second Edition of Aftershock
Judging from the beginning-of-the-year media reports in 2011, as well as the forecasts of many investment professionals, it appears we have passed the financial crisis caused by the popping of the bubble economy, and there will be no Aftershock.
That would be welcome and comfortable news—if only it were true.
Instead, what happened in early 2011 is just as we predicted. As the four interacting bubbles (stocks, housing, private credit, and consumer spending) pop, they will put enormous pressure on the two remaining—and much more fundamental—bubbles in our bubble economy: the government debt and dollar bubbles.
That’s because there has been an enormous incentive to further inflate the government debt and dollar bubbles in an effort to stall the popping of the other bubbles. And that is exactly what the government has done in two ways. First, it has increased its annual deficit by almost 550 percent from $250 billion in 2007 to $1.6 trillion today, pumping up the government debt bubble. And even more stunningly, it has increased the U.S. money supply by an unthinkable 200 percent (from $800 billion in 2008 to more than $2.4 trillion today), pumping up the dollar bubble.
By inflating these bubbles even more, we are temporarily preventing the other bubbles from deflating further and, in some cases, such as the stock market, we are actually reinflating the bubble to some extent. This was most clearly shown in late 2010 when Fed Chairman Ben ...
