The Casino Economy Explained

Hell has put forward his opinion that markets are currently in a bubble of mega proportions; something which he terms the casino economy. As anyone that follows his blog knows, I agree with his proposition that most assets are over-valued but disagree with his analysis of today's phenomenon in terms of a traditional bubble. In this post, I will formally develop my arguments. 

I propose that the current asset market bubble is not driven by greed but by fear; fear of a total political / economic meltdown of the global economy. When we view the stock market, bit coin and gold price go through the roof, we should not think of them as bubbles that will eventually deflate but as an ever growing price for insuring against catastrophic financial collapse. 

Similarly, when we view the apparently irrational boom in momentum driven assets, we should not think of it as irrational behaviour of dumb people but the rational behaviour of investors who think that the long term does not exist. 

If climate estimates are correct and New York is under water in thirty years; are we sure there will by a New York stock exchange in twenty years? The foundations of our monetary system  is American debt. These obese, over-paid, entitled Americans think their current, extravagant wages are slave wages... Do they have any intention of paying back their debt?

Consider the following example. Assume you are a business man whose company is going to collapse tomorrow; and the mafia is going to kill you for unpaid debts. Do you take your all your current cash and bet it on the roulette  wheel or do you buy a cheap consignment of iron ore?  The former is expectation negative in monetary terms but expectation positive in terms of survival (there is a chance you live). The latter is expectation positive in monetary terms but expectation 0 in survival (there is no chance you live).  


I think Hell's description is a good one. This is the Casino economy, the last hurrah of a economic system built on quick sand. Strap yourselves in boys, we are coming in hot.


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