The Source Of The Speculative Bubble

Bankruptcies Decline Again

If someone would have told you that there would be a pandemic that caused millions of job losses, but personal bankruptcies would fall, you wouldn’t have believed it. This unbelievable event is real life. Personal bankruptcies fell in 2020 and are falling again this year. In fact, personal bankruptcies are about half of what they were in 2019. This type of information allows us to start wondering out loud if the federal government went overboard with stimulus.

Many policymakers don’t believe there is such a thing as too much stimulus especially in an emergency. Either the government just found a solution to all future recessions or inflation is coming. If this is a new solution, every prior recession in the past few decades caused more harm than was necessary. The size of the inflation boost will tell us everything we need to know about whether this policy solution was a success. Of course, we aren’t minimizing the positives. The $600 weekly unemployment boost last year was the best-timed fiscal policy in decades. However, $1,400 payments this year to many people who have jobs, might be overdoing it.

The Source Of The Bubble

There are reports of a family office blowing up in March which caused forced block sales in some equities. That caused them to crash. It’s important to review the potential leverage in the system to determine if it’s possible other, bigger unwinds will occur. It’s notable that the decline in speculative software stocks hasn’t brought them to their historical average valuations (still expensive). If such a small decline in the Nasdaq can cause a blowup, we might be in for a shock when larger declines happen.

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Disclaimer: The content in this article is for general informational and entertainment purposes only and should not be construed as financial advice. You agree that any decision you make will be ...

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