What caused the NASDAQ bubble?

[eric_cartman]

I know the housing bubble was caused by Greenspan when he lowered interest rates to artificially low levels. this housing bubble was caused by the expansion of money and credit which sent out false signals to the market causing malinvestment resulting in an asset bubble in housing. the low interest rates allowed for the lax lending standards, and combine with wall street repackaging the mortgages allowed housing prices to be bid up in this speculative mania.

but when i looked at interest rates in the late 1990's, they were not at these low levels, yet the NASDAQ bubble was created anyways. And when the bubble started to burst, that's when Greenspan lowered the rates, which failed to reinflate the bubble. So i don't see how the NASDAQ bubble was caused by low interest rates.

So was the NASDAQ bubble created by an expansion of the supply of money and credit, despite the fact that interest rates remained level? Was it caused by the increase in the MZM?

And someone made the argument to me that the tulip bubble in the netherlands in the 1600's was created by irrational exuberance since monetary policy didn't really exist back then. so was this tulip bubble created by irrational exuberance rather than an increase in the supply of money and credit.

i was just having a debate with someone, and they agreed that greenspan caused the housing bubble with low interest rates... but this person did not agree that greenspan created the NASDAQ bubble. i explained how these bubbles are all the same, and are all created by an artificial expansion in the supply of money and credit, but i didn't know enough about how the NASDAQ bubble was created to be able to explain it in the same detail that i can the housing bubble.

so if anyone can explain how the NASDAQ bubble and the tulip mania were created, that would be very helpful. thanks. (i am very familiar with the Austrian theory of the business cycle thanks to mises.org and ron paul... but i just don't know all the facts and details about the NASDAQ bubble).

[noxagol]

The NASDAQ bubble was made by the dotcom craze. Almost everyone was encouraging people to buy tech stocks and this turned out to not be a good idea. Someone was saying that they were viable even though they made no profit and some other bullshit.

[LibertyCola]

http://personalwebs.coloradocollege.edu/~ptaylor/EC%20151/greenspan.jpeg

[llepard]

I know the housing bubble was caused by Greenspan when he lowered interest rates to artificially low levels. this housing bubble was caused by the expansion of money and credit which sent out false signals to the market causing malinvestment resulting in an asset bubble in housing. the low interest rates allowed for the lax lending standards, and combine with wall street repackaging the mortgages allowed housing prices to be bid up in this speculative mania.

but when i looked at interest rates in the late 1990's, they were not at these low levels, yet the NASDAQ bubble was created anyways. And when the bubble started to burst, that's when Greenspan lowered the rates, which failed to reinflate the bubble. So i don't see how the NASDAQ bubble was caused by low interest rates.

So was the NASDAQ bubble created by an expansion of the supply of money and credit, despite the fact that interest rates remained level? Was it caused by the increase in the MZM?

And someone made the argument to me that the tulip bubble in the netherlands in the 1600's was created by irrational exuberance since monetary policy didn't really exist back then. so was this tulip bubble created by irrational exuberance rather than an increase in the supply of money and credit.

i was just having a debate with someone, and they agreed that greenspan caused the housing bubble with low interest rates... but this person did not agree that greenspan created the NASDAQ bubble. i explained how these bubbles are all the same, and are all created by an artificial expansion in the supply of money and credit, but i didn't know enough about how the NASDAQ bubble was created to be able to explain it in the same detail that i can the housing bubble.

so if anyone can explain how the NASDAQ bubble and the tulip mania were created, that would be very helpful. thanks. (i am very familiar with the Austrian theory of the business cycle thanks to mises.org and ron paul... but i just don't know all the facts and details about the NASDAQ bubble).

Great questions.

For a bubble to form two ingredients are necessary. 1. Human behavior sees a quick money trend and amplifies it. 2. Money or credit is available to do so.

The Nasdaq bubble was kicked off by the Netscape IPO. I was there. The stock did a 5-10x appreciation very rapidly and that kind of movement attracts investors like flies to shit. Suddenly everyone was a dotcom. I believe at the time that rates were too low but that was not the biggest factor. Rates were too low because our monetary system is flawed and the interest rates we see are way too low. So money was a factor, but not the biggest factor.

To Holland. I was not there so I do not know if credit was involved in the Tulip Bulb mania, but I suspect it was. The Dutch were pretty sophisticated bankers and I am willing to guess that their money supply was expanding and you could buy tulips on margin. (phantom money).

Back to Nasdaq. The dotcom bubble was a relatively modest affair until 1998. If it had collapsed in 1998 not too many people would have been hurt. Just speculators. I thought it was going to collapse in August 1998 when Russia defaulted and LTCM went tits up. But, this is where the government stepped in. By cutting rates and helping to broker a bail out of LTCM enormous moral hazard was created and the Government basically said to the hedge fund and leveraged community, party on Garth. Bailing out LTCM was the crime of the century. Greenwich, CT speculators should have been wiped out!

If you go to big charts and look at all the data on the NASDAQ you will see that in 1998 the run up in the Naz had been relatively tame. It had gone from 600 to 1800. It was the LTCM bail out that re-lit the fire. Enormous moral hazard. That caused the naz to go to 5000, before crashing 80% in 2000-2003. This is where all the damage was done.

It also did not help that Alan Greenspan (i call him Mr. Magoo) was saying there was no bubble and that we were in a "new era" in terms of productivity. Also, rates were absurdly low compared to what you could make speculating in the stock market during this time period.

Lying, greedy Wall Street analysts also fueled the fire. Henry Blodgett's emails calling some of his clients "pieces of shit, destined to fail and only good for investment banking fees" is an indicator of how the insiders on Wall Street knew what a scam the whole thing was.

See what kind of mischief you can get into with a fiat based currency?

The Gold Standard. Don't run your country or monetary system without it.

LWL

PS: The Nasdaq bubble was a bad thing but the Country would have recovered just fine over time. Not everyone was playing in that bubble and many of the people who got hurt deserved to get hurt. (eg: the speculators). The Housing Bubble which was ignited by Mr. Magoo's 1% interest rates is a different matter. Everyone has a house and many more people participated. That is why we I believe we are in for something that looks worse than the Great Depression.

[Truth Warrior]

Bogus "Greater fool" theory.<IMHO>

It goes up because it's going up, it goes down because it's going down. ;)

Lemming ville.

[eric_cartman]

thanks everyone, and espeically llepard for the great replies.

i'm sure if were were on the gold standard, a lot of the bubbles we see today would be much smaller or non-existent.

[Arklatex]

Mal investment, in short.

Over at the obama forums they're probably talking fashion, here we have invaluable insights and threads like these. :cool:

Sometime we should discuss the Ron Paul portfolio (http://seekingalpha.com/article/84359-ron-paul-s-investment-portfolio). Maybe have to take it to the economics forum for that!

Interesting how there's the human nature aspect to bubbles, going all the way back to tulip bulbs. Is there a current bubble in gold??

[New York For Paul]

Many suggested limits on the margin requirements. I think the FED could limit how much you could buy stock on margin.

It was at one hundred percent at the time I think. So if you own 10 thousand dollars in stock you could borrow ten thousand dollars in stock.

Many felt if you reduced margin requirements to fifty percent of the value of the stock, the bubble would have been greatly reduced.

Bob Brinker talked alot about this.

[llepard]

Mal investment, in short.

Over at the obama forums they're probably talking fashion, here we have invaluable insights and threads like these. :cool:

Sometime we should discuss the Ron Paul portfolio (http://seekingalpha.com/article/84359-ron-paul-s-investment-portfolio). Maybe have to take it to the economics forum for that!

Interesting how there's the human nature aspect to bubbles, going all the way back to tulip bulbs. Is there a current bubble in gold??

There is not a bubble in Gold. Gold is up 3x off its low. Most bubbles result in 10x, 20x or 100x price explosions.

Also, the price of gold is being suppressed with derivatives by Central Banks and statists. See www.gata.org