30 comments for “Economic Bubbles Are Leaking. Once They Pop, Game Over

  1. Tom Belstler
    March 13, 2016 at 12:33 am

    I am curious about how Mr. Wolf would describe the differences between a recession and a depression. Here in the US, more than 50% of the folks pay no income tax because they do not make enough money. Roughly the same percentage receive some form of government aid. The labor force participation rate is 62.9%. Consumer debt is increasing again. What else would have to happen or change in order for Mr. Wolf to say that the US is in a recession, in a depression? As an ordinary sheeple, I would say that we have been in at least a recession since 2010 and probably a depression depending on where you live.

    • March 13, 2016 at 1:43 am

      I hate to tell you this, but the US, as of Dec 31, isn’t even in a plain old recession, just slow and slowing growth.

      And in terms of the tax code, you can make quite a bit of money and not pay taxes, if you know what you’re doing. See Boeing and GE!

      • LG
        March 13, 2016 at 2:29 am

        I’m a busines owner so I employ workers. In the last 15 years inflation has been slowly killing everyone, business owners and workers! Rents have doubled, home prices doubled, healthcare doubled, cost of living , food up 30%. Consumer debt at insane levels. Savings rate 0!
        My top workers that make 80k a year will not afford a 750k 1000sqf fixer!
        Ever! If they get married to an equal wage earner they will live in the fixer for 15 years before they can afford $300/ square feet remodel costs! If this doesn’t point to a recessionery or a deflationary economy then what is?

        • March 13, 2016 at 9:49 am

          Someone making 80k a year and not being able to buy a small fixer-upper: that points to asset price inflation, which is exactly what the Fed in the US and CBs elsewhere accomplished so well. The so-called “wealth effect.” We have lambasted it here forever. Asset price inflation in terms of home price inflation eventually impoverishes those that don’t own those assets and also shows up in exorbitant rents.

          But an economy is not measured in asset prices. For better or worse, it’s measured in terms of either income or expenditures (two views of the same thing, from different sides), across the economy. This is GDP. I think it’s a terrible way to measure an economy, but that’s how it is done. So when income or expenditure measures increase, the economy is said to be growing.

          But also, economies are local, so there may be a real boom over here and a long-term decline over there.

        • CENTURION
          March 14, 2016 at 9:57 am

          I don’t know where you live, but there are literally THOUSANDS of homes in the $100,000 to $200,000 range. County wide there are Thousands.

          I have noticed that those who complain about home prices are looking for a mansion or something unreasonable. Maybe they don’t like the neighbors or demographics in all the locations where homes are affordable.

          Don’t be bigoted, closed minded or intolerant and you can afford many homes.

      • prepalaw
        March 13, 2016 at 2:58 am


        Wolf Street is a great site and I keep recommending to everyone.

        This is not a trick question. Since I started investing some 50 years ago, the term “Growth” appears and re-appears constantly.

        I may sound stupid, but could some one please tell what “growth” means, in the context of finance or economics.

        Growth of what?

        Revenue? Profit? Expenses?

        Does Growth mean more consumption?

        A business sold $100,000 worth of stuff in 2014 and made zero money. That business sold $110,000 worth of stuff in 2015 and made a loss. Does this business have “Growth”?

        You write that the US now is experiencing “slow and slowing growth”. What does that mean.

        I oversee a business that manufacturers industrial automation equipment and systems. The size of the physical plant and office has not changed for 15 years. Gross revenue is range bound. But, because we work smarter today than yesterday; and accomplish the same tasks with fewer people; and raise prices to our customers, our profits have increased every year.

        My question is this: Am I overseeing a “Growth Business”.

        The owner of this business is not unhappy. We have been in business for 35 years. We have no debt and a sterling reputation for high quality equipment and service. We serve some of the largest corporations in the US and Canada.

        For us, increasing revenue has always been priority #3. Priority #2 is reputational excellence. Priority #1 is after-tax profit.

        • polecat
          March 13, 2016 at 2:03 pm

          I’ll take a shot: Continual and rapacious growth, with all its’ unaccountably negative externalities towards the commons and the environment, will indeed cause a depression……on a global scale……

          I see this currently happening, everywhere in the post- Industrial West, as well as the BRICS

          Buckle Up !!!

        • Petunia
          March 13, 2016 at 4:19 pm

          Growth is an accounting characteristic. A company is growing when its real equity is growing. Real equity is what the company can turn into cash realistically and measured after they pay all there obligations. It does not include goodwill or other intangibles.

          Many companies today that are flush with cash and borrowing heavily to pay dividends are not growing, they are actually in liquidation mode. Their equity is down.

          Growth is hard to see in the financials because it may be due to assets carried at cost which may have greatly increased in value. High cash balances are not growth. High sales numbers are not growth. Any profits that improve equity are growth.

        • CENTURION
          March 14, 2016 at 10:00 am


          I once had a 32 in. waist size. Now, today, after Growth, it is 38 inches.

          IS that Growth and therefore beneficial and good?

      • Tom Belstler
        March 13, 2016 at 11:03 am

        There are government statistics and there is reality. Between the two, I much prefer reality which can be pieced together of one is careful about sources and maintains a sceptical attitude about what one reads.

      • Tim
        March 13, 2016 at 1:18 pm

        Tax exempt bonds, qualified dividends, depreciation schedules, depletion allowances, etc. You don’t need to be GE or BA or ….

    • MC
      March 13, 2016 at 3:21 am

      “A recession is when your neighbor loses his job. A depression is when you lose yours.”
      -Harry Truman-

      • walter map
        March 13, 2016 at 8:15 pm

        I devised a technical distinction between ‘recession’ and ‘depression’ some years ago. Let me know if you like it.

        A ‘recession’ is an economic decline generally associated with the trough of a business cycle, and generally amenable to relief through adjustments in monetary and fiscal policy.

        A ‘depression’ is not amenable to such adjustments, resulting as it does from severe structural deficiencies, and treatable only through substantial structural reforms.

        Much of the world, therefore, is in a depression, since the economic downturn is clearly the result of deep structural problems. The system is quite brokenm but only so far as the general population is concerned. Since, as we have seen, TPTB like things the way they are, you can expect this condition to be more or less permanent, insofar as neither structural reforms nor fiscal relief are ever likely to be forthcoming.

        Why, when the situation is so clear and alarming, does it remain so stubbornly intractable to change? It’s because those who have power in the world want it to be this way. The masters of mankind believe their wealth and power will protect them from the adverse effects of their depredations, but the fact is that they cannot leave the planet either, and their policies make ecological collapse, and their own discomfiture, quite inevitable.

        • Tom Belstler
          March 13, 2016 at 11:15 pm

          I recommend a book titled “Killing the Host” by Michael Hudson which lays out the current worldwide situation very succinctly.

  2. Colin
    March 13, 2016 at 10:22 am

    Some people think the real GDP is a bit lower than the government claims. Also, growth of inflation drops a bit around 1991 and never returns. Real inflation is higher than the government claims. The GDP should go up as inflation goes up and the population continues to increase. The GDP is the least relevent statistic out there.

    • nhz
      March 13, 2016 at 12:59 pm

      same story in Europe where Eurostat started including estimates for money spend on hookers, drugs and (other) criminal activity in the GDP, which gave the bureaucrats from some EU countries a good incentive to boost their GDP numbers and mask a real decline in productive activity (in some countries GDP jumped by over 5% just from this new rule). Inflation numbers in Europe are totally bogus as well and way underestimating real inflation for the average citizen (like in most of the developed world, probably).

  3. Kam
    March 13, 2016 at 10:39 am

    Rising GDP is a fiction when it is financed perpetually from debt that is forced onto future generations.

    In other words, future GDP must pay for current GDP. Inter-generational theft. Period.

    • walter map
      March 13, 2016 at 12:52 pm

      “Rising GDP is a fiction when it is financed perpetually from debt that is forced onto future generations.”

      There is no accounting for debt in reported, conventional GDP statistics. GDP is falling when debt is taken into account.

      One could conceivably borrow a billion and burn it, and this could be counted as an increase in conventional GDP even though it is functionally a loss. Some people believe this has already happened.

  4. Bigfoot
    March 13, 2016 at 11:01 am

    MC – beat me to the punch,

    So exactly what “game” is going to be over? I hear this bandied about often.

    Every thing is grand, all is merely ok, we are in a recession, we are in a depression – The answer is always going to be a personal one depending on your situation, not some sham statistics. Sure, you can use the rigged & ridiculous government stats to secure your views ( like CPI excluding food & energy because we all know nobody needs food or energy, unemployment, debt levels, money supply, etc.). The only thing that is relevant is what we each see & feel on a personal basis. While I understand that many people discuss the economy using all the various government metrics/data as a basis for their definitions & discussions (& most have to in a public forum such as the interview here), I find almost NO value in the crap that spews out.

    Instead, it’s the observations of people like LG posting above that matter & highlight the realities of the day, NOT these bogus stats. On one hand, his employees (like the MAJORITY) are feeling the pain of rising costs for nearly everything while their incomes are stagnant or declining. On the other hand, the companies whether it’s big pharma or housing/development get to report all these rosy “economic” numbers & stats (GAAP be damned). So the reported company/economic stats = good, while the majority of people see their own economic realities in decline. But, it’s no recession, those government stats show us that? Yeah right.

    Growth seems predicated on the issuance of more debt, the realities stemming from a debt based currency. For the financial sectors it’s finding new ways to “game” the system or digging back into the “playbooks” from days gone by. In theory, derivatives are a zero sum game, but the reality is that this view is highly dependent on the solvency & liquidity of the parties involved. It’s all about the collateral, what the true value of the said collateral is, & if there are multiple claims on the collateral in question. We never know what the truth is, by design. Perhaps this is the cornerstone of the “game”.

    In retrospect, the small biz I had for 2 decades was predicated in large part by just another financial “game”. There’s that word again. Many people played a part in the “game” (most probably never realized this, I didn’t at first), worked hard, & continued playing the “game” until it was over. In the US (& many other places), we live in a highly regulated world, full of propaganda/laws/rules/regulations dispensed on a regular basis. In the eyes of our rulers (because we all have this intense need to be ruled??) we are indeed the sheep, here to be fleeced on a regular basis. Keep us “herded” in the proper direction because we are all too stupid to run our own lives. I believe the “game” is extracting as much productivity from the “flock” as possible under the wisdom of our great “leaders”. —–Anyone familiar with 2112 from Rush? Those were some profound lyrics for a 76′ rock song. link –
    https://www.youtube.com/watch?v=xxipsCRjegk Neil Pert is not only a world class drummer he was/is obviously a deep thinker as well being the writer of these lyrics.

    Lets take the “game” of healthcare. Imagine for a moment, if we took 50% of what we are now FORCED ( through the threat of fines, confiscation, or imprisonment) to spend on this quagmire & instead spent it with our personal farmer to grow us real, unprocessed, wholesome, & healthy foods, we would end so much of the sickness related to our food supply that there would be little need for the type of healthcare system we have. How about the millions of dollars in subsidies (corn, wheat, sugar) that primarily go to the large agriculture firms? What if these subsidies vanished? Who wins (from a financial & health perspective) in the two aforementioned scenarios & who loses so to speak. Obviously, the people win & big healthcare, big agriculture, & big government lose. Unfortunately, for those with eyes wide open, it is becoming increasingly difficult to bob & weave through the minefield of rules & regulations.

    Another aspect of the “game”, war. For those who haven’t read Major General Smedley Butlers -“War Is A Racket”, here’s a link. Written in 1935 but essential reading IMO to understand the “game” of war.

    Maybe I veered off track a bit. What’s your definition of the “game” ? As I see it, we are all participants (reluctant or willing) in a multi faceted matrix perpetrated upon us. I find it sad that so few I encounter have any realization of what the “game” might be & what their role in the “game” is.

    • nhz
      March 13, 2016 at 1:07 pm

      regarding ‘healthcare’:
      even if they money wasn’t spent on healthy food, I think most of the Western population would be a lot more healthy if money for healthcare were cut in half (or better cut by at least 90%) and the remaining budget spend wisely. Most pharma drugs and many expensive medical procedures cause more problems and costs to society than they solve.

      Big Agri and Big Government same story, they can profit and some of their customers benefit thanks to shifting most of the downside of these policies to others and/or to the future. It works until the chicken come home to roost, it is not a viable business model for the long run.

    • NotSoSure
      March 13, 2016 at 5:34 pm

      This round of the “game” will probably be over within the next one or two years. The bigger game of human beings abusing one another using some kind of ideology or constant delusion will go on forever and ever and ever as long as there are human beings.

      The Chinese have had 5000 worth of history. Notice any change over those years? Back to the same GAME of power, greed, and again delusion i.e. if only we do things A, B, and C then everything will be better.

      The game will be over when:
      1. No one is left to play or:
      2. People have advanced to a state when the notion of playing the game itself is absurd.

      Guess which one will happen first?

      • Bigfoot
        March 14, 2016 at 5:53 pm

        I agree NSS, the “game” will never be over. Just like war seems to be a constant.

  5. Paulo
    March 13, 2016 at 11:24 am

    Prepalaw, (regarding growth definition)

    I used to work for a west coast charter airline from 87-93. We had a small staff and were paid salary with profit sharing. At the end of the year we would receive Christmas cheques for $5-6,000, which was in 1987 a very nice chunk of change for a workingman. The monthly salary was enough to cover normal household costs and expenses (my wife stayed home to look after our children and we had a modest home and mortgage on 1/2 acre). Included with this ‘contract’ was the concept that there would be no seasonal layoffs of pilot staff. It was expressly stated and a major reason why we had such good staff. The company was very efficient and profitable for many years. We had extremely experienced pilots and the cream of the customers. Our equipment was superbly maintained and there was no damage to aircraft in daily operations.

    Then, the owner caught a bug we call ‘Airlineitis’. His ego assumed the root of his success was his brilliance, and he would soon accomplish what no other airline had ever done before. He would grow his fleet, his staff, service, routes, and profits. Needless to say, gross revenues climbed and profits declined. The ‘social contract’ was broken when he laid off two pilots (with mortgages and families). I was the pilot/manager for him and we used to conduct some pretty heated arguments in the back room. When he laid off ‘our family’ I told him he had now ‘broken the trust’, and that efficiency would decline as well as profits. And it did.

    Pilots soon stopped doing any extras. On scheds, if the weather or conditions were tough, pilots would decline to land. He would start questioning the time it took to fly to specific charter destinations, even though pilots always logged their time to the minute. As his company got out of hand he began to micro-manage, which is really a form of bullying. I left to go back to University and soon others left to fly for brand X, or leave the industry, entirely.

    Did his company grow? Was that growth, or decline? The numbers were bigger. He bought a new truck. We had more expensive aircraft. We ‘seemed’ to be busier.

    As this ‘thing’ unfolded he started to have heart problems. Now, (and I left 23 years ago), he is down to just himself flying year round, and a summer season part-timer who is 65 years old. The owner is pushing 70. His daughter works in the office and his son-in-law does the maintenance. His son-in-law thinks the family is bonkers and likes to go to the bar instead of go home.

    This story really reminds me of our North American growing and healthy economy these days. Delusions of grandeur, growth at all costs, (excuse the pun), bigger numbers, swaggering owners/managers, broken social contracts, decline of ‘buy-in’ by employees, (us vrs. them), and finally sclerotic results.

    I am sure his banker and accountant still love him. I’m not sure anyone else does.

    As an aside, after I started teaching high school I went back flying. I was the weekend and summer guy. I worked for a small operator who paid me a very nice wage (in cash). We were small, and had the best customers and equipment. We worked as a tight family. I think it is funny how the whole thing went full circle. Very lucky.

    • prepalaw
      March 13, 2016 at 5:28 pm

      To Paulo

      From prepalaw

      Thank you for your feedback. I understand your former boss’s failure. Our success is based on the totality of respect that our people have for each other and their cooperative dedication to the mission at hand – taking care of the customer.

  6. March 13, 2016 at 12:35 pm

    Watched your interview. Here in the NY Metro area, the homes in the areas which were formerly near corporate HQ are languishing. IBM, for example, and the homes in Westchester and Duchess County. Poughkeepsie used to be wonderful place to live with money from IBM employees and related businesses. Whereas in Manhattan and Brooklyn, housing prices are generally strong and going up. A testament to the virtues of price control.

    Also, thank you for keeping enthused and working at what you do.

  7. nhz
    March 13, 2016 at 1:28 pm

    comment about the interview:

    I don’t see any sign that the Dutch housing bubble is bursting, and it probably is much of the same in most of Europe. Average sales prices for the whole country are still below the peak of 2008 or so, but in hot spots like Amsterdam prices have fully recovered and all over the country both sales volume and prices are rising at a healthy pace. Not surprising of course, with the lowest mortgage rates in 400 years, extremely high rents for those who are not entitled to some kind of subsidy and hardly any safe alternatives to park your money (unlike savings accounts, value of ones home is hardly taxed here and gains from selling a home are tax free).

    IMHO the Dutch housing bubble is a good lesson for how long things can go on despite being unsustainable. Our bubble has been building from around 1987 in the financial hotspots or 1990-1991 in the more remote areas of the country. The 10-20% decline after 2008 was only a small dip compared to the huge runup before it. Although real estate is indeed local, in many areas home prices have increased by over 1000% (even a lot more for top real estate). Most of the price gains here occurred in the late nineties with again a big jump due to introduction of the euro (like in several other EU countries). The main difference between our part of Europe and the US is probably zoning and a all kinds of regulations that limit new building.

    As to car loans: one of the biggest car loan / lease companies here is a subsidiary of German VW and although they hardly have real banking customers (with savings account etc.) they are officially considered a bank and protect by the Dutch/EU deposit insurance. So whatever they do, they cannot go bankrupt as the Dutch savers and taxpayers will pay the bill. Auto sales have also surged here last year to record numbers, partly thanks to crazy government incentives (buy now or pay a lot more tax next year) – the sector is afraid that 2016 will be bad because sales have been stolen from the future.

    It’s interesting to hear how Oz is leveraged to the housing bubble, but Netherlands isn’t much different. Only the way they get the leverage is different here: currently over 90% of mortgages comes with a guarantee against financial loss when you have to sell the home (due to loss of job, divorce etc.). All these mortgages are covered by a government-sponsored entity that has just enough cash to handle defaults of about 0.1% of the housing stock; if things go wrong the entity is on the hook for many billions and all this is fully backed by the taxpayers (although most of them don’t know this). Politicians will tell you ‘it works fine, no need to worry!’ because there hasn’t been any serious price decline in 30 years.

    The Netherlands had a previous housing bubble in the eighties, where prices declined 45% from the top within 1.5 years – nobody remembers. Although the Dutch often present themselves as fiscally responsible, if you add personal debt they have one of the highest debt levels in the whole world (even worse than Greece and some other poster boys of irresponsible policy). It’s also funny how the home price statistics always start around 1990 or so, it has been a continues climb ever since and nobody is interested to know what happened before that …

  8. Old Codger
    March 13, 2016 at 5:44 pm

    On the recession/depression scale, where does nationwide, bloody, social chaos fit?

    The pitchforks are coming!

    • walter map
      March 13, 2016 at 7:52 pm

      “The pitchforks are coming!”

      Maybe, but they won’t be going anywhere. Give TPTB some credit when it comes to providing for their own well-being.

      Knowing perfectly well that their onerous and malicious policies should likely lead to popular revolt, they have after all been careful to prepare for such eventualities. Hence the distractions like reality teevee and spectator sports, overmedication and legalisation of recreational soporifics, impoverishment and debt, compliant courts, domestic surveillance, and militarization of local law enforcement.

      All told you can expect your overlords (and overladies) will be truly comfortable during and after the coming social transition, even while nearly everybody else agonises in a Kafkaesque dystopia beyond their wildest night terrors.

      Be glad you are not young in so thoroughly finished a world.

  9. Tom Belstlert
    March 13, 2016 at 6:39 pm

    One more comment about government statistics vs reality. It is easy to understand why the government cooks the books about certain things such as inflation. Owning up to the real rate of inflation would drive the deficit through the roof. I use the Chapwood Index as the gauge of the amount of inflation I really experience.


    I live almost exactly halfway between Charlotte and Atlanta and find the index reflects what I and my friends experience very well.

  10. d
    March 14, 2016 at 7:54 am


    A simple increase in Equity does not give, or indicate, business growth.

    Inflation will cause Equity increase in many circumstances. And the reduction of debt will cause Equity to rise, without growth.

    A sales value increase alone, does not indicate growth, at the same or lesser profit margin. As again inflation can cause this

    An increase in production, at the same or lesser cost, sold, at the same, or greater profit margin. Consistently maintained at each new level annually, without an increase in inventory rotation times, without a reduction in equity. Indicates business growth, as the Entity’s activities have become truly consistently greater. It has in fact “Grown”.

    Even with a rise in debt/number of shareholders, to fund capex, to increase production capability.

    For a nation to claim real economic growth, it needs the majority of its national business entity’s, to be doing this consistently. And its annual budget deficit %, before borrowing cost, to be consistently neutral, or shrinking.

    Not entity’s operating offshore, bring back some profit and increasing the tax take a little. Not an increase in stock market valuations.

    There should actually be periods of national budget surpluses where total debt is reduced.

    Also obviously true Un/underemployment must also be consistent, or shrinking, as true wages, must also be consistent or rising.

    The physical size of an economy can grow, a lot, at the same time, it is experiencing, true economic shrinkage.

    One only has to look at what has happened to Main Street, and middle class America, since 2008 to see this.

    Then look at what has happened to American industry, and the national economy, in America, since 1974.
    20/20 hindsight. Nixon and Kissinger drank to much chinese whisky, and made a very bad deal.

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