"Since 1970, every time asset values have risen above 520% of households disposable income (the dashed line in the chart) then the US has been in a bubble and a subsequent crash has followed. This has simply meant asset values growing much faster than households income or households capability to sustain those price increases. The depth of each crash has been relative to the overshoot of asset values on the upside."
Chris Hamilton, Bubble-nomics
It seems as though when I procrastinate long enough someone eventually does a very good job of making a point for something that is important, and does it in a way that I may not have been able to do as well otherwise.
A favorite refrain of financiers, fraudsters, politicians and their defense lawyers is to pose the questions in defense of a lie or a fraud in such a way as to blur the lines of recognition, so as to create room for a reasonable doubt. Indeed, the boldest among them will ask those would listen to them to question reality itself. What does 'is' really mean, for example.
Chris Hamilton of Economica as noted in the second quote above has come up with a very clever way to help to put a little rigor around the concept of financial asset bubbles. Obviously the crux of the problem is to find some metric, some reasonable and relatively stable or significant relationship against which to measure changes in one value and compare them over time.
Chris has chosen disposable income, which is actually pretty darn good. And since the link between disposable income and net worth has a suggestion of correlation, and not just causation, the shoe seems to fit fairly well.
One might rephrase it as 'when is the economy unusually asset rich, and relatively income poor.' There are other standards one might use, but modern fictionalization economic measures like money supply has knocked a few of them for a loop. And I am sure that there are economists aplenty who can cast a doubt on any of them.
Truth can become a very slippery thing, especially when a conspiracy of silence, or the subornation of perjury, in support of a lie becomes especially lucrative to the point of being de rigueur, a kind of badge of office among the elite, and sadly even among those who are sworn to uphold justice, and to protect the innocent.
This next bubble and crash cycle is going to put a tear in the social fabric, and may even leave a mark. The natives are clearly getting restless and their sahibs may be in danger of losing control.
What does it profit a man, indeed.
Have a pleasant evening.
