#1 ·
Back in 2007, everything looked absolutely pristine. The Dotcom bubble from the turn of the century seemed like ancient history, the US Dollar was being challenged by the Euro, and gold—having started its epic climb in late 2005—was trading at around $650 an ounce by the end of 2006. Some people, clearly seeing the writing on the wall back in 2005, had already started loading up on gold.
Between 2000 and 2003, the Federal Reserve slashed interest rates from 6.5% down to 1%, making money easier to grab than it had been in nearly forty years. The stage was perfectly set for yet another soap bubble, just waiting to burst like all the others before it.
If you look back, the history of market bubbles stretches all the way to the 1600s in the Netherlands, when Tulip Mania hit such a fever pitch that a single top-tier bulb could fetch what amounts to $60,000 today. Then, in the 1920s, the American stock market inflated itself into another massive bubble that popped spectacularly in 1929, triggering the Great Depression. We saw a slightly less dramatic version of that same cycle in 2000 when the Dotcom bubble burst. At the end of the day, the two engines driving these events are always the same: pure greed and paralyzing fear.
It took about six or seven years for that greed to inflate a brand new bubble. During that stretch, real estate prices climbed like crazy; bankers were practically salivating, handing out loans left and right to developers, homebuyers, and everyone else in between because those low Federal Reserve rates made it feel like a free lunch. To the uninitiated, it all looked pretty idyllic.
From mid-2004 to mid-2006, the Federal Reserve hiked rates from 1% up to 5.25%, tightening the money supply. By 2007, the American housing market hit its peak, and the new bubble was primed to pop. But this time, it felt different. It felt like it might be the last one.
The collapse of the American housing market triggered the credit crunch of 2008. The institutions deemed "too big to fail" found themselves under the protection of the government, while those that weren't—think Lehman Brothers or Bear Stearns—were swallowed up by competitors or wiped out entirely. The show was just getting started; we were only witnessing the opening act.
In essence, the first act involved banks, massive corporations like AIG and General Motors, and, of course, the masses on Main Street. The Federal Reserve suddenly realized they were in deep trouble and, between late 2007 and early 2009, dropped rates from 5.25% all the way down to 0.25%!!?!!?? And then our newly elected Mr. Change basically spat in his own face, continuing to shovel hundreds of billions of US Dollars into the hands of the very people who caused the crisis in the first place.
It’s almost as if these guys enjoy trying to put out a fire with gasoline!
For a while, they were just shooting blanks, pouring more fuel on the flames and digging themselves even deeper. All while this virtual financial virus was tearing through the rest of the world. Now, we’re moving into the second round of the crisis.
Then, around 2009, the conversation shifted toward sovereign debt. Bingo. That’s when I knew. Everything we've seen so far is child's play compared to this. Last year, the media started acting like Greece was drowning in debt. Now, the financial noose is tightening around Spain, Portugal, Italy, Belgium, the United Kingdom, Ireland, the United States, Japan... Decades of the widening gap between production and consumption—or rather, debt-fueled spending—are finally coming due. Living on borrowed time is possible, sure, but not indefinitely; eventually, the house of cards built on overextension collapses.
On August 2nd, the US Congress is expected to vote on raising the debt ceiling by another $14.3 trillion.
This feels like a defining historical moment. A negative outcome would mean national bankruptcy, which, if you ask me, would trigger a domino effect capable of completely finishing off an already shaky global economy. Personally, I’m rooting for that outcome, simply because it’s going to happen sooner or later. It’s better it happens now than later. Everything has its seasons, its rises and its falls. Everything is fleeting. We are living in a fascinating era where excess, inefficiency, ruthlessness, and the sheer senselessness and weakness of our current economic model are all being dragged into the light. The eagle is wounded; will it fall?
Between 2000 and 2003, the Federal Reserve slashed interest rates from 6.5% down to 1%, making money easier to grab than it had been in nearly forty years. The stage was perfectly set for yet another soap bubble, just waiting to burst like all the others before it.
If you look back, the history of market bubbles stretches all the way to the 1600s in the Netherlands, when Tulip Mania hit such a fever pitch that a single top-tier bulb could fetch what amounts to $60,000 today. Then, in the 1920s, the American stock market inflated itself into another massive bubble that popped spectacularly in 1929, triggering the Great Depression. We saw a slightly less dramatic version of that same cycle in 2000 when the Dotcom bubble burst. At the end of the day, the two engines driving these events are always the same: pure greed and paralyzing fear.
It took about six or seven years for that greed to inflate a brand new bubble. During that stretch, real estate prices climbed like crazy; bankers were practically salivating, handing out loans left and right to developers, homebuyers, and everyone else in between because those low Federal Reserve rates made it feel like a free lunch. To the uninitiated, it all looked pretty idyllic.
From mid-2004 to mid-2006, the Federal Reserve hiked rates from 1% up to 5.25%, tightening the money supply. By 2007, the American housing market hit its peak, and the new bubble was primed to pop. But this time, it felt different. It felt like it might be the last one.
The collapse of the American housing market triggered the credit crunch of 2008. The institutions deemed "too big to fail" found themselves under the protection of the government, while those that weren't—think Lehman Brothers or Bear Stearns—were swallowed up by competitors or wiped out entirely. The show was just getting started; we were only witnessing the opening act.
In essence, the first act involved banks, massive corporations like AIG and General Motors, and, of course, the masses on Main Street. The Federal Reserve suddenly realized they were in deep trouble and, between late 2007 and early 2009, dropped rates from 5.25% all the way down to 0.25%!!?!!?? And then our newly elected Mr. Change basically spat in his own face, continuing to shovel hundreds of billions of US Dollars into the hands of the very people who caused the crisis in the first place.
It’s almost as if these guys enjoy trying to put out a fire with gasoline!
For a while, they were just shooting blanks, pouring more fuel on the flames and digging themselves even deeper. All while this virtual financial virus was tearing through the rest of the world. Now, we’re moving into the second round of the crisis.
Then, around 2009, the conversation shifted toward sovereign debt. Bingo. That’s when I knew. Everything we've seen so far is child's play compared to this. Last year, the media started acting like Greece was drowning in debt. Now, the financial noose is tightening around Spain, Portugal, Italy, Belgium, the United Kingdom, Ireland, the United States, Japan... Decades of the widening gap between production and consumption—or rather, debt-fueled spending—are finally coming due. Living on borrowed time is possible, sure, but not indefinitely; eventually, the house of cards built on overextension collapses.
On August 2nd, the US Congress is expected to vote on raising the debt ceiling by another $14.3 trillion.
This feels like a defining historical moment. A negative outcome would mean national bankruptcy, which, if you ask me, would trigger a domino effect capable of completely finishing off an already shaky global economy. Personally, I’m rooting for that outcome, simply because it’s going to happen sooner or later. It’s better it happens now than later. Everything has its seasons, its rises and its falls. Everything is fleeting. We are living in a fascinating era where excess, inefficiency, ruthlessness, and the sheer senselessness and weakness of our current economic model are all being dragged into the light. The eagle is wounded; will it fall?