Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, July 01, 2005

Are We in a Megabubble?
a questionnaire

I'm not wholly convinced we're in any kind of bubble. But MA keeps trying to convince me that we are. Here, from, is an intriguing check-off questionnaire that may help you decide whether you think we're in a bubble.

This is not a normal domestic real estate bubble/bust cycle. We may be in an extraordinary global megabubble and real estate is just one of its many components.
Follow the clues. Then you decide if you see the bubbles! Look at each separately and then score them on a scale of 1 to 5, with 1 being the least likelihood of a bubble and 5 meaning there is a definite bubble about to burst. ...

The Megabubble Poll

  • Real estate bubble. Clues: Speculators driving prices. Lenders offer cheap money, short-term loans. Home-equity loans fund short-term spending. Fed chairman sees minimal froth.
  • Energy and oil bubble. Clues: Crude hits another record. Political turmoil in oil-producing nations. Consumers buy gas-guzzlers at record pace. GM, Ford in trouble.
  • Foreign-trade deficit. Clues: Monthly deficits top $50 billion. This year's deficit will beat 2004's $617 billion. Foreigners now own $2.5 trillion of America.
  • Federal-budget deficit. Clues: Federal debt now $7.8 trillion; add another $400 federal deficit this year.
  • Corporate pensions underfunded. Clues: Airlines, auto, other manufacturers heavily burdened, default to taxpayers.
  • Local government pensions deficits. Clues: A near $400 billion mess draining local taxpayer resources.
  • Weak U.S. dollar. Clues: Fear China and other foreign powers will replace dollar reserves. Warren Buffett now betting $20 billion on foreign-currency hedging.
  • Social Security deficit. Clues: No choice, cut benefits or raise taxes; politicians hate both, so it'll get worse.
  • Health-care costs. Clues: Burden shifting to employees. Costs above inflation. 43 million uninsured.
  • Medicare deficit. Clues: Going broke faster than Social Security. Prescription drug benefit added an unfunded $8.1 trillion. Long-term estimates over $36.6 trillion.
  • Personal-savings shortfall. Clues: We consume not save. National savings rate is zero, down from 8% two decades ago. Average household net worth less than $15,000, excluding home equity.
  • Consumer debt bubble. Clues: We're living beyond our means. Consumer debt at $2 trillion. At 13%, household interest as a percent of income is at all-time high. Personal bankruptcies rising.
  • War and defense deficit. Clues: Iraq and Afghanistan wars cost over $200 billion a year, $2 trillion a decade.
  • Homeland insecurity. Clues: Minimal legislation to protect ports and chemical plants. Federal budget even cut border patrol 90%. Vigilantes patrolling.
  • Class gap widening. Clues: Superrich and CEOs getting increasing share of wealth, ownership and tax cuts.
  • Congressional pork. Clues: Both parties act like teenage addicts on a spending spree with stolen credit cards. By not using the veto, the administration acts like a parent who needs Nanny 911.
  • International credibility. Clues: Image problems: Post-9/11 imperialism, WMDs, Abu Ghraib, Gitmo and more.
  • Junk mailings. Clues: Mail solicitations increasing for credit cards and hot stock newsletters.
  • New "Mad Money" cable show. Clues: Frantic, manic entertainment; 1990s irrational exuberance again.
  • Numerous key mini-bubbles. Environmental, resources, technology, educational, outsourcing, jobs, you pick!

Now total up your scores on these individual bubbles. If your total is 50 points or more, you see a megabubble dead ahead. Prepare accordingly. If you're close to 100 points, consider a very conservative strategy.

My score was 48. I'm about 1/3 liquid with my pension fund.
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