This time is (never) different

An oft-repeated phrase before an economic or market-based bubble bursts is “this time is different”. A few months ago I asked what the consequences of the Federal Reserve printing $8 trillion. Best anyone can say is that the one clear result of that is a highly inflated stock market.

I stumbled upon the Current Market Valuation website to find all these graphs. Above is Warren Buffet’s favorite market metric: total U.S. market value divided by U.S. GDP. All time historic high… by quite a lot.

A clearer graph showing the correlation of Federal Reserve printing money vs. the stock market is above. The vertical line in 2020 was $2 trillion created after the stock exchanges crashes more than they ever had in history, with larger one-day drops than the former historic crash of 1929.

There are a multitude of ways to look at market value. Another indicator is the P/E ratio: the ratio of stock prices (P) to corporate profits (a.k.a. earnings = E). The market is not as high as the height of the dot-com bubble in 2000, but only the short sellers want to see a repeat of that size market crash.

The two big questions are (a) will the market have a big drop, as seen in the past when indicators get this far off the norm, and (b) will the Federal Reserve find a way to shrink its balance sheet back down to the sub-$1 trillion level it was before the Panic in 2007-2009? Maybe, for once, this time really is different?

There are a lot of great posts buried in this blog’s archives that are still quite apt. Today is another reprise, this time revisiting the (often invisible) tradeoff between efficiency and resilience. Last time I explained that tradeoff with the case study of electricity blackouts in Texas and how that related to Google’s monopoly on search and Amazon’s dominance of eCommerce...

GDP is not the best of measures but it is what we use to meaure economies. Globally, (in 2023) that totals more than $100 trillion. My post-pandemic work is primarily focused on the bottom left slice of this big pie, in Africa. That continent’s GDP is more than $3 trillion, and even 1 trillion dollars is a lot of dollars, but in comparison to the rest of the world, is tiny. Smaller still as...

Who invented double entry accounting? The ubiquitous system of general ledgers, income statements, balance sheets, and cashflow statements found throughout businesses and quite a lot of households? This is yet-another of those concept so taken for granted that they seem to have been around “forever”, but thanks to Double Entry: How the Merchants of Venice Created Modern Finance by...

Despite the fact that stock markets have been operating for over 400 years, how exactly they work at the level of individual participate and individual role is rarely documented. Here in the 21st Century most of the accounts are how to make money as an investor, two or three steps away from the actual transactions taking place within the exchange. Which is why it was so fascinating to find and...

The Visual Capitalist comes though again with an animated tale of the last 120 years of world reserve currencies. Some screen shots and commentary below: The start of the 20th Century is the end of the British Empire. The USD is a minor currency. The British Pound is by far the world’s most popular reserve currency and the world’s international trade settled in London, not New York...