Warren Buffett explains Why Bubbles Happen
>Buffett was asked by CNBC’s Andrew Ross Sorkin if he is worried another crisis will happen again.
>”Well there will be one sometime,” Buffett said in an interview for CNBC’s “Crisis on Wall Street: The Week That Shook the World” documentary. The documentary airs Wednesday night at 10 p.m. ET/PT.
>”People start being interested in something because it’s going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren’t,” he said. “And their spouse is saying can’t you figure it out, too? It is so contagious. So that’s a permanent part of the system.”
That last paragraph perfectly explains Bitcoin. Most of those investing in cryptos have little idea how they work, or what they are even buying.
Buffet made no mention of the corporate bond bubble, the equities bubble, or even the crypto bubble. He does not see any bubbles now, at least that he mentioned.
Symptom or Cause?
Buffett confuses a symptom (rampant speculation) with the true cause
- The Fed (central banks in general), keep interest rates too low, too long
- Fractional reserve lending
- Moral hazards like bank bailouts
- Poor fiscal policies and massive government debt
In short, there is no free market in anything and thus no valid price discovery. There would always be speculation, but Fed policies and fractional reserve lending are the root cause of bubbles.
Mike “Mish” Shedlock
I don’t know anyone getting rich off a speculative bubble. Except maybe in overtime due to the Colorado housing bubble, but that might actually be the real deal as those who can are fleeing California.
Then again, if it’s bubbles all the way down maybe we’re all getting rich from them. Some just faster than others.
If those are the “true causes”, why were there bubbles long before those “true causes” existed? At best your “true causes” are not causes at all, but things that encourage and facilitate them, making them more common.
The true cause can be easily expressed in one word: “Greed”.
what can replace fractional reserve lending?
Obama’s QE and ZIRP allowed those first in line to get insanely rich with no risk.
Like Warren who thinks himself a genius.
Sadly, there is no such thing as fundamental value when it comes to stocks.
Sure there is. A share of stock is ownership of a fraction of the corporation, so the fundamental value of that share of stock is the net worth of the corporation divided by the number of shares of stock outstanding.
To Blacklisted: Where the F did I say “if only we ended the Fed everything would be fine” – put more words in my mouth and I start deleting your idiotic comments Besides, it is clear you cannot even read. I specifically cited poor fiscal policy. The Fed does not control that.
Cryptos were and are essentially worthless.
Cryptos only rose because speculation, because they were used in illegal things like drug dealing and because Chinese used cryptos to get their money out of China without being stopped by the money prison China has for Chinese peoples money through currency controls and permits needed to send money abroad in large sums.
First you say they are worthless, then you list some of the things they can be used for.
They are essentially worthless but since there was a temporary speculative mania they could be used for the things I stated and that increased said speculative mania.
Cryptos are still the preferred currency for many in selected markets. Ransom, online drugs, some transnational money movement etc. So they are obviously not worthless.
Fiats are making it harder to remain private by the day. Gold is still a bit clunky for people reared on Amazon Prime. Hawala requires a society of trustworthy people. While genuine, default Crypto privacy turned out to be harder than initially thought; it’s still an engineering problem. Much more likely to be solved than, say cost-free, instantaneous transfer of Gold; or Fiat currencies ever morphing into anything but instruments for theft and repression.
World has a bubble of bubbles right now…
There you go again. If only we ended the Fed, all would be fine. I don’t know if you keep up this nonsense as a distraction from the real problem – career politicians and the favored laws they pass for their bankster donors, like rescinding Glass-Steagall so transactional banking could flourish; or really don’t understand what you are saying. Search “fractional banking” at Armstrong to get educated.
Fed is part of the problem and actually the biggest part that enables all the others.
Deficit spending is enabled by Fed.
Offshoring that destroys well paying jobs and importing millions of low wage workers to crush wages at home are both enabled by Fed because Fed enables to continued increases in debt that keeps consumers, companies, states and federal government spending into an ever increasing debt bubble that creates FALSE demand and hides the effects of Offshoring and importing millions of low wage workers.
Bankers flourish with the ever increasing debt because Fed will always bail them out.
Fed excesses give bankers real profits from Fed induced FAKE demand based on debt, debt, debt that they can use to fund politicians giving bankers always a pass and the kind of legistlation that they want.
Fed policy gives the profits to bankers and large companies and they then use the profits to fund politicians until there is complete regulatory capture and control fraud in the whole economy like is happening now…
Where the F did I say “if only we ended the Fed everything would be fine” – put more words in my mouth and I start deleting your idiotic comments
Besides, it is clear you cannot even read. I specifically cited poor fiscal policy. The Fed does not control that.
The moral hazard of rewarding the very people who lead organizations into financial ruin with their recklessness and bad decision making is truly repugnant. Watching the worst failures in the history of business walk away with taxpayer funded golden parachutes was an abomination and a true evil. Meanwhile, everyone else is punished so these miserable creatures can maintain an obscene and lavish lifestyle at our expense. Institutionalizing cronyism is one of the worst legacies of central banking.