I like the optimism but I suspect we're still in the early stages of this process. There's lots of bubble to unwind here, and this mess hasn't even started to untangle.
I recently came across this quote from PG in one of his earlier essays [0] describing the early days of the dotcom bust regarding yahoo. Sounds very similar to the situation we're in now:
> It was not just our price to earnings ratio that was bogus. Half our earnings were too. Not in the Enron way, of course. The finance guys seemed scrupulous about reporting earnings. What made our earnings bogus was that Yahoo was, in effect, the center of a Ponzi scheme. Investors looked at Yahoo's earnings and said to themselves, here is proof that Internet companies can make money. So they invested in new startups that promised to be the next Yahoo. And as soon as these startups got the money, what did they do with it? Buy millions of dollars worth of advertising on Yahoo to promote their brand. Result: a capital investment in a startup this quarter shows up as Yahoo earnings next quarter—stimulating another round of investments in startups.
We are nothing like that situation. This was a common problem in the .com bust days in that the money was often just being passed around. Double Click had a similar situation where they had a good business but many of their customers didn't. But they (and other solid business) did make it through the purge and went on to be big successes.
Today we have an ecosystem that is far more diverse and what I'd call "real". Yes, there's probably quite a few over valued dogs out there but there are a lot of businesses that are legit creating revenue streams and growing well past 20%, 30%, etc. This is why I believe the parent is right in that we are in a harsh correction and not a meltdown.
Agreed because this time the asset bubble extends well beyond tech. This is a much larger problem and will take much longer to unwind, cutting much deeper than that.
I understand the sentiment and there's certainly a logical and valid case for it. But I disagree with it and here's why:
1) The secular trend in falling interest rates and "low" interest rates will continue longer term. Raising rates rapidly has been disruptive but it also gives some breathing room and the ability to slowly lower rates again, which will be needed to stimulate demand again. Lower interest rates obviously impact asset prices as borrowing becomes cheaper so you can borrow more.
2) 40-year fixed rate mortgages will be a think soon. This will increase many asset prices and allow people to continue to participate in buying real estate and generating wealth over time. This is a massive priority to the government because home owners are one of the most valuable things a government can have as they generate property taxes and give people skin in the game which means continued support of the regime. This impacts real estate assets because the monthly payment is lower which means you can pay more for things using cheaper money.
3) The rapid inflation we saw had nothing to do with low interest rates, at least not on their own. It was 100% because of the pandemic and how we reacted to it. Lots of liquid money was pumped into the system and this is the important part - it was liquid. Also, our entire supply line and logistics structure was optimized for a certain existence and the pandemic disrupted all of that. Suddenly money was being spent on different things and it has created all sort of supply and demand problems. This is beginning to smooth out and by 2025 I expect the effects of the pandemic on inflation will be gone. This means we can resume the secular trend of generally lowering interest rates long term.
I like your optimism about 2025. Tension around china, russia, north korea is rapidly increasing and by the end of the decade I'd expect a bigger war there. US will have to print another pile of money and then face a choice: let the economy sink in the inflation or join the war. The dust will settle by 2055.
Given that you include it in your predictions, I would not put much stock in them. You're confusing domestic propaganda and saber-rattling with actual assessments of geopolitics. It's up there with feeling threatened by a communist Grenada.
As for Russia, it's been a year, and it's still having quite a time in failing to invade the poorest country in Europe. There's a colossal gap between how you think the world stands, and how it actually stands. Russia's a failing Potemkin village, whose only asset of note is 10,000 nuclear weapons.
There are only three kinds wars that will ever be waged between the US and Russia.
1. A proxy conflict which one or both of the sides aren't actually deeply invested in. (<---- As of 2023, we are here.)
2. None at all.
3. End-the-world Armageddon.
None of these are a good fit for the rest of your narrative. It's just a hodgepodge of political anxieties.
The asset bubble mostly affects valuations. The real economy is still producing and consuming, regardless of the weird shit that happened to the money supply because of COVID.
The dot-com collapse was due to a million startups selling $10 bills for $9. None of the major firms doing layoffs now have that as their core line of business.
I can't speak as to what's going on in the startup space.
I recently came across this quote from PG in one of his earlier essays [0] describing the early days of the dotcom bust regarding yahoo. Sounds very similar to the situation we're in now:
> It was not just our price to earnings ratio that was bogus. Half our earnings were too. Not in the Enron way, of course. The finance guys seemed scrupulous about reporting earnings. What made our earnings bogus was that Yahoo was, in effect, the center of a Ponzi scheme. Investors looked at Yahoo's earnings and said to themselves, here is proof that Internet companies can make money. So they invested in new startups that promised to be the next Yahoo. And as soon as these startups got the money, what did they do with it? Buy millions of dollars worth of advertising on Yahoo to promote their brand. Result: a capital investment in a startup this quarter shows up as Yahoo earnings next quarter—stimulating another round of investments in startups.
0. http://paulgraham.com/bubble.html