The "Everything Bubble" is about to burst!

Discussion in 'Economics & Trade' started by wgabrie, Mar 21, 2023.

  1. wgabrie

    wgabrie Well-Known Member Donor

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    I read a news article about the "everything bubble" bursting -- Brace for the S&P 500 to plunge 50% and a painful recession to strike as the 'everything bubble' bursts, elite investor Jeremy Grantham warns (msn.com)

    Then I talked to Bing's ChatGPT, the one now built into the Microsoft Edge web browser, about the everything bubble. I won't go into details here, but it suggested that monetary easing would be the response to this.

    However, with inflation high as ever, I think the Fed will continue to tighten its monetary policy. Here's what Bing's ChatGPT said about what would happen:
    Doesn't that sound like fun?

    That deflationary spiral sounds like a form of price control to me, but the Chat AI disagrees with me, and I also think there are other situations in the economy, like high costs, which will prevent prices to fall.

    It looks like we face more of the same hard times that we find ourselves in.

    If they want to collapse the economy, now might be a time to do it, to rush in the replacement system, which I don't see happening. Or otherwise, we're all going to lose a lot of money which seems to have been the plan all along (to fight inflation).
     
  2. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    There may be a bubble, but I suspect any article claiming the S&P 500 is going to plunge 50% is grossly exaggerated.
    ChatGPT isn't really that "intelligent", mostly just copies information from other sources, but it is true the likely response of the Federal Reserve to any such crisis would be monetary easing, printing more money to replace the money that "disappears" in the economy. This prevents prices from changing. During a normal recession, the prices would lower, which is both good and bad, but government policymakers mostly seems to be of the opinion they should try to stop that.

    Printing more money doesn't always necessarily result in more observable inflation. During an economic crisis and bank failures, bad loans result in money "disappearing" from bank accounts. It's kind of like people thought there was money there that did not actually exist. So when government prints money to replace that, you do not see any obvious price increases. It just prevents prices from going down.

    Of course many people believe the government borrowing and printing all this money in the first place is what helps fuel these bubbles and ultimately can result in the bubble popping and causing recession.
     
    Last edited: Mar 22, 2023
  3. Chrizton

    Chrizton Well-Known Member

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    Deflation increases the purchasing power of a dollar. The big unknown is how many people will lose the dollars they are using to pay their bills. The most practical way to see the day to day effects of this is to compare cost of living or purchasing power parity in various other places with New York or LA.
     
  4. Pro_Line_FL

    Pro_Line_FL Well-Known Member Past Donor

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    Fake news rarely do.

    Its true the pandemic overreaction (especially in in 2020) flooded the markets with new money, which created inflation, but it had been brought down by 33% already, and is declining more, so the money tightening worked, and the Fed will ease up with the rate hikes. The stock market did not crash, housing market did not crash and deflation did not happen and job market is pretty much pristine.
     
    Last edited: Mar 22, 2023
  5. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Just to point out (and hopefully you will agree with me), raising interest rates cannot counteract inflation that's already happened.
    What raising interest rates (or what it really should more accurately be called is not holding interest rates down) will do is reduce the amount of additional inflation.

    I think we all know the Fed isn't going to bring the inflation rate down to near zero levels, so that's going to mean they aren't actually going to compensate for all the inflation that's already happened. They'll just might (and that's not even a certainty) try to slow down the inflation in the future. And that would only partially put the brakes on the total inflation.

    I'm also extremely skeptical about your claim that inflation has "been brought down by 33% already".

    Price of wheat 2020 $5.4980
    Price of wheat March 2023 $7.9544

    Price of gold 2020 $1,773.73
    Price of gold March 2023 $2,009
     
    Last edited: Mar 29, 2023
  6. Pro_Line_FL

    Pro_Line_FL Well-Known Member Past Donor

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    Its the difference between the peak and now.
     

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