The next bubble: Priming the markets for tomorrow’s big crash


Harper’s Magazine

That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle.

Increasingly, this is what Karl Marx called fictitious capital, money based on money rather than on anything real or tangible. A credit default swap sold against a collateralized debt obligation based on tranches of thousands of mortgages that the buyer doesn’t even have to own is most certainly fictitious capital. The nominal value of such transactions is probably in the trillions. And they benefit no one in the real world.

In a bubble, fictitious value goes away when market participants lose faith in the religion—when their false beliefs are destroyed as quickly as they had been formed.

And what does Harpers think the next bubble will be (I agree with this.)

There is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water. Indeed, the next bubble is already being branded.

It’s important to understand that financial interests will be engineering this bubble, and will make money on the way up as well as on the way down. Just like they are doing now with real estate and mortgages.

But even with that, a renewable energy / cleantech boom means that something useful and of consequence will be built.

  • DJ

    Our very currency is fictitious capital based on nothing to back it up– it only has value because we believe it does.

    Milton Friedman makes a good argument that our going off the gold standard caused the Great Depression to spread beyond our borders because we were foisting worthless currency on other nations that (in those days) had to pay us back in gold.

  • Taking the illuminated view, our current energy dependency is but a bubble.

    I’ve argued before, albeit of irrational dependencies on fairy tales, that we as a species stand at a cusp, on the verge of an evolutionary iteration while walking a fine line to extinction. If we don’t overcome our irrational dependencies, we may not even survive.