Everything Bubble
Outline:
Introduction
Addendum of basic concepts, assume knowledge of what GDP is and what the stock market is.
Indicators that we are in a general everything bubble (high crypto valuation, gold, stock markets).
Explanation of why income and wealth inequality leads to the creation of asset bubbles.
Explanation of how small pops take place in separate markets but that the everything bubble doesn’t pop, because it can’t and the way it functions works for the rich as a form of money insurance.
Explanation of why this inequality will either hamper overall economic growth or make people’s lives worse. The economic paradox
1. Are we in an everything bubble?
That’s the question we have to consider as the price of gold, stocks, property, crypto and even trading cards sky rocket as general GDP growth rates lag far behind those of asset prices around the world.
2. Addendum
This video is going to be a little technical. And I hope to not bore you too much, also I have to give the addendum that despite the work I’ve put in on my own I’m still new to economics and finance and don’t have formal training. To understand this video you’ll need a basic understanding of what GDP and asset/stock markets are, I’ll put one for GDP I found useful in the description.
3. Indicators that we are in a general everything bubble (high crypto valuation, gold, stock markets).
In the last decades we’ve seen a real decoupling between GDP growth and the growth of the stock market and asset prices in general.
As we see by growing P/E ratios (price to earnings, or could also be understood as valuation over profits) is nearing all time highs and the Buffet indicator which puts the total valuation of the stock market over the US’s GDP is at an all time high as well. Looking a lot like how it did before the dot com bubble was about to burst.
We’re currently in a sustained period of stagnant and unimpressive growth and yet asset prices are growing rapidly. This isn’t really sustainable as the whole reason that anyone would buy an asset like a stock is because of the expectation of returns in cash, now that can either be because you believe someone else will buy it from you or because you believe that the dividends given a long enough time will pay back your investment (eventually the final buyer must believe the former).
The same is true for house prices, although that part of the bubble may have begun to deflate in the U.S. as many indications have started to show dramatic reductions in house prices.
So the facts are that despite meager economic growth, asset growth has been immense.
4. Explanation of why income and wealth inequality leads to the creation of asset bubbles
How do asset markets rise at a higher rate than overall growth?
Well it’s simple, the average person is spending more money on assets than goods and services.
But whenever we hear this about the “average person”, we have to take it with a titanic-sinking-iceberg sized grain of salt.
If Elon walked into a room with nine homeless people the average net worth of the people in that room would be 40 billion dollars. And yet nine of those don’t own homes or can even afford rent. So the “average person” is a skewed representation of a place’s individuals if there are large amounts of variance in the dataset.
But the facts are that more money is being spent on assets than on goods and services. That is mainly because the rich, who have the same necessities as everyone else, who have limited wants and limited time to enjoy those wants, spend a smaller percentage of their income on goods and services and a larger one on acquiring assets that generate more income to ensure their position and the wealth and security for their family. And because the rich have been getting much more income than the working class at large (as seen in income inequality graph), more money is being spent on assets.
This isn’t immoral, from their short-sighted point of view, it’s logical and good to look out for their future and those of their children. The issue is that if the wealth of the rich grows much faster than that of everyone else then that must mean it has been done by purchasing assets from others who needed to sell those assets to have cash on hand to purchase their needs. Making it harder for them to raise their wealth in the future.
5.
But regardless of any moralistic discussions we want to have about how income and wealth should be distributed let’s go back to the technical, why don’t these bubbles pop? A fair valuation for a company used to be considered a P/E ratio of 10. These days the average for the stock market is 26, Apple is over 30, Walmart over 40, Nvidia over 50, and Tesla over 100. Some say that this is in expectation of large economic growth in the future, but what gives people that idea? The trend for the last few decades has been clear, real growth is slowing down in most western countries.
So again why is the bubble not popping? Well, for one, it’s because the rich are still receiving a larger and larger percentage of incomes making those markets grow, also because if they don’t buy assets that money loses value to inflation.
So we don’t get a giant pop for now, we get a small pop in one market, then the capital sold in that market goes to another asset market, from real estate, to stocks, to gold, to crypto, all assets go up in the long term but in the short term there seems to be a lot of fluctuation as the underlying economic figures for all those assets seem less and less worth the investment. So we get small deflations of the bubbles as others rise in return, and we rotate which bubbles inflate and deflate. But in the long run they’re all inflating.
What would happen if the everything bubble burst?
Well a gigantic chunk of the investment which we depend on would stop, as the rich hold on to assets like physical gold in their vaults. On the contrary they could give away their money to encourage spending from the working class, but if only a few of them do it then they’ve lost their wealth as others maintained theirs. Regardless, it’s unlikely this everything bubble will “pop” completely (excluding a world war) as the international system has worked incredibly well for the rich as a sort of money insurance where the entire pot of money grows and however much you put in indicates how much you can take out.
A sort of pyramid scheme like those that your one cousin you barely speak to comes to you with. And as long as the game doesn’t end then you “all make more money”. A system where the entire point of owning something is to sell it to someone else is nothing more than a pyramid scheme and as gdp growth remains low and asset prices balloon that is what asset markets look more like each and every single day.
6.
But let’s assume it won’t burst, mostly because it hasn’t, and the rich will always look for productive places to put their money. One thing we’ll see more, as earnings rates stagger but the wealth of the rich grows in the economy (as compared to stock valuations) is more and more money spent on “speculative” or “risky” stores of value like art, collectibles and especially crypto which as of yet seems to have no real use case except for money laundering as far as I can tell. The valuation of all crypto now sits at almost $4 trillion. For those that see these risky stores of value as the scams that I would also consider them to be, they’ll either put that money in bonds, property or stocks despite high P/E ratios. If too much money goes into bonds then it becomes a less and less attractive investment, if property is where the money goes then house prices become unaffordable for new generations and if they go into stocks of existing companies a number of things can happen.
Stock holders lower their expectations for ROI (earnings per share), this has the same issue as the bond market. Eventually the earnings will be so small there’s no point in lending the money or buying the stock.
Company growth is demanded without changing price or cost of goods and services, this can be done without hampering other corporations to a certain point as growth here can’t be higher than growth in GDP without taking over the competition which would bring us closer to monopolies.
General enshittification, either price gouging for the same service, or lowering costs by making the product worse (there can be cost cuts that don’t make it worse but eventually there will be no other choice). Price gouging makes it so the general public has less money to spend elsewhere, cutting costs by letting people go decreases the amount of money held by the general public to spend and cutting costs by making the products worse makes them less valuable and the customer less happy.
They can choose to put it into new companies, this is actually really good for growth as that initial investment goes directly into paying new wages for jobs that previously didn’t exist. Still the revenue of this new venture depends heavily on total growth, if all people were taking these risks then a lot of new jobs would be created. Which means total wages in the economy goes up would go up and revenues as well.
Another asset where the rich can put their money that isn’t risky is gold, gold is widely accepted as a store of value and has for thousands of years. The issue with gold is that ultimately it’s a waste of productive capacity as money that could have been spent on loans or stocks that would pay people to take risks and work don’t get done.
To conclude, from sky high P/E ratios and the Buffet Indicator we can see that if there isn’t a bubble well at the very least something extremely strange is taking place with asset price valuations that goes against what used to be accepted wisdom.
I hope that here I’ve managed to explain how rising asset prices due to income and wealth inequality lead to either
Waste in how money is spent in an economy, such as crypto (the money whole)
More expensive price of housing or rent
Lower ROIs for bonds and stocks
Less real growth in quality of life because of price gouging. Or less being spent as there are less people with salaries or lower salaries.
Finally, worse goods and services for the same price that also reduce quality of life.
In reality all five of these are happening to some extent and the greatest winners are people who treat asset markets like a pyramid scheme and just look to sell their assets to the next person.
Unfortunately, this is a pseudo pyramid scheme that all the richest people are more than happy to play, they’re all doing better continuously and the only thing that would ruin the game for them is to stop playing. However, as their game makes them wealthier it makes those on the bottom rungs of society poorer. Because it’s the working class’s salaries that get lowered, they get let go, their goods and services drop in quality, their lives get worse. And lives have been getting worse, the median salary in the U.S. of 42k in 2000 would be worth 78k in 2025 and yet the median salary today is 61k so people’s income has reduced by more than 20% in the U.S.. In Spain, where I live, the reduction from 2000 is 10%, which is less but it goes to show this isn’t an America specific thing. Wherever you’re from I suggest you calculate how much purchasing power has changed. In the U.S. the working class have told us they’re doing poorly by electing candidates that have promised radical change from what came before, candidates who recognize that the system as it was wasn’t working. Some of those ideas could be good, some are bad, but we do need new ideas. In the upcoming months I’ll upload some ideas that I’ve been wrestling with. In the meantime I would love to hear your thoughts in the comments below.
Is there anything you found off in my analysis? Would you like clarification on a certain part of it? Or anything at all you’d like to comment on.
Introduction
Addendum of basic concepts, assume knowledge of what GDP is and what the stock market is.
Indicators that we are in a general everything bubble (high crypto valuation, gold, stock markets).
Explanation of why income and wealth inequality leads to the creation of asset bubbles.
Explanation of how small pops take place in separate markets but that the everything bubble doesn’t pop, because it can’t and the way it functions works for the rich as a form of money insurance.
Explanation of why this inequality will either hamper overall economic growth or make people’s lives worse. The economic paradox
1. Are we in an everything bubble?
That’s the question we have to consider as the price of gold, stocks, property, crypto and even trading cards sky rocket as general GDP growth rates lag far behind those of asset prices around the world.
2. Addendum
This video is going to be a little technical. And I hope to not bore you too much, also I have to give the addendum that despite the work I’ve put in on my own I’m still new to economics and finance and don’t have formal training. To understand this video you’ll need a basic understanding of what GDP and asset/stock markets are, I’ll put one for GDP I found useful in the description.
3. Indicators that we are in a general everything bubble (high crypto valuation, gold, stock markets).
In the last decades we’ve seen a real decoupling between GDP growth and the growth of the stock market and asset prices in general.
As we see by growing P/E ratios (price to earnings, or could also be understood as valuation over profits) is nearing all time highs and the Buffet indicator which puts the total valuation of the stock market over the US’s GDP is at an all time high as well. Looking a lot like how it did before the dot com bubble was about to burst.
We’re currently in a sustained period of stagnant and unimpressive growth and yet asset prices are growing rapidly. This isn’t really sustainable as the whole reason that anyone would buy an asset like a stock is because of the expectation of returns in cash, now that can either be because you believe someone else will buy it from you or because you believe that the dividends given a long enough time will pay back your investment (eventually the final buyer must believe the former).
The same is true for house prices, although that part of the bubble may have begun to deflate in the U.S. as many indications have started to show dramatic reductions in house prices.
So the facts are that despite meager economic growth, asset growth has been immense.
4. Explanation of why income and wealth inequality leads to the creation of asset bubbles
How do asset markets rise at a higher rate than overall growth?
Well it’s simple, the average person is spending more money on assets than goods and services.
But whenever we hear this about the “average person”, we have to take it with a titanic-sinking-iceberg sized grain of salt.
If Elon walked into a room with nine homeless people the average net worth of the people in that room would be 40 billion dollars. And yet nine of those don’t own homes or can even afford rent. So the “average person” is a skewed representation of a place’s individuals if there are large amounts of variance in the dataset.
But the facts are that more money is being spent on assets than on goods and services. That is mainly because the rich, who have the same necessities as everyone else, who have limited wants and limited time to enjoy those wants, spend a smaller percentage of their income on goods and services and a larger one on acquiring assets that generate more income to ensure their position and the wealth and security for their family. And because the rich have been getting much more income than the working class at large (as seen in income inequality graph), more money is being spent on assets.
This isn’t immoral, from their short-sighted point of view, it’s logical and good to look out for their future and those of their children. The issue is that if the wealth of the rich grows much faster than that of everyone else then that must mean it has been done by purchasing assets from others who needed to sell those assets to have cash on hand to purchase their needs. Making it harder for them to raise their wealth in the future.
5.
But regardless of any moralistic discussions we want to have about how income and wealth should be distributed let’s go back to the technical, why don’t these bubbles pop? A fair valuation for a company used to be considered a P/E ratio of 10. These days the average for the stock market is 26, Apple is over 30, Walmart over 40, Nvidia over 50, and Tesla over 100. Some say that this is in expectation of large economic growth in the future, but what gives people that idea? The trend for the last few decades has been clear, real growth is slowing down in most western countries.
So again why is the bubble not popping? Well, for one, it’s because the rich are still receiving a larger and larger percentage of incomes making those markets grow, also because if they don’t buy assets that money loses value to inflation.
So we don’t get a giant pop for now, we get a small pop in one market, then the capital sold in that market goes to another asset market, from real estate, to stocks, to gold, to crypto, all assets go up in the long term but in the short term there seems to be a lot of fluctuation as the underlying economic figures for all those assets seem less and less worth the investment. So we get small deflations of the bubbles as others rise in return, and we rotate which bubbles inflate and deflate. But in the long run they’re all inflating.
What would happen if the everything bubble burst?
Well a gigantic chunk of the investment which we depend on would stop, as the rich hold on to assets like physical gold in their vaults. On the contrary they could give away their money to encourage spending from the working class, but if only a few of them do it then they’ve lost their wealth as others maintained theirs. Regardless, it’s unlikely this everything bubble will “pop” completely (excluding a world war) as the international system has worked incredibly well for the rich as a sort of money insurance where the entire pot of money grows and however much you put in indicates how much you can take out.
A sort of pyramid scheme like those that your one cousin you barely speak to comes to you with. And as long as the game doesn’t end then you “all make more money”. A system where the entire point of owning something is to sell it to someone else is nothing more than a pyramid scheme and as gdp growth remains low and asset prices balloon that is what asset markets look more like each and every single day.
6.
But let’s assume it won’t burst, mostly because it hasn’t, and the rich will always look for productive places to put their money. One thing we’ll see more, as earnings rates stagger but the wealth of the rich grows in the economy (as compared to stock valuations) is more and more money spent on “speculative” or “risky” stores of value like art, collectibles and especially crypto which as of yet seems to have no real use case except for money laundering as far as I can tell. The valuation of all crypto now sits at almost $4 trillion. For those that see these risky stores of value as the scams that I would also consider them to be, they’ll either put that money in bonds, property or stocks despite high P/E ratios. If too much money goes into bonds then it becomes a less and less attractive investment, if property is where the money goes then house prices become unaffordable for new generations and if they go into stocks of existing companies a number of things can happen.
Stock holders lower their expectations for ROI (earnings per share), this has the same issue as the bond market. Eventually the earnings will be so small there’s no point in lending the money or buying the stock.
Company growth is demanded without changing price or cost of goods and services, this can be done without hampering other corporations to a certain point as growth here can’t be higher than growth in GDP without taking over the competition which would bring us closer to monopolies.
General enshittification, either price gouging for the same service, or lowering costs by making the product worse (there can be cost cuts that don’t make it worse but eventually there will be no other choice). Price gouging makes it so the general public has less money to spend elsewhere, cutting costs by letting people go decreases the amount of money held by the general public to spend and cutting costs by making the products worse makes them less valuable and the customer less happy.
They can choose to put it into new companies, this is actually really good for growth as that initial investment goes directly into paying new wages for jobs that previously didn’t exist. Still the revenue of this new venture depends heavily on total growth, if all people were taking these risks then a lot of new jobs would be created. Which means total wages in the economy goes up would go up and revenues as well.
Another asset where the rich can put their money that isn’t risky is gold, gold is widely accepted as a store of value and has for thousands of years. The issue with gold is that ultimately it’s a waste of productive capacity as money that could have been spent on loans or stocks that would pay people to take risks and work don’t get done.
To conclude, from sky high P/E ratios and the Buffet Indicator we can see that if there isn’t a bubble well at the very least something extremely strange is taking place with asset price valuations that goes against what used to be accepted wisdom.
I hope that here I’ve managed to explain how rising asset prices due to income and wealth inequality lead to either
Waste in how money is spent in an economy, such as crypto (the money whole)
More expensive price of housing or rent
Lower ROIs for bonds and stocks
Less real growth in quality of life because of price gouging. Or less being spent as there are less people with salaries or lower salaries.
Finally, worse goods and services for the same price that also reduce quality of life.
In reality all five of these are happening to some extent and the greatest winners are people who treat asset markets like a pyramid scheme and just look to sell their assets to the next person.
Unfortunately, this is a pseudo pyramid scheme that all the richest people are more than happy to play, they’re all doing better continuously and the only thing that would ruin the game for them is to stop playing. However, as their game makes them wealthier it makes those on the bottom rungs of society poorer. Because it’s the working class’s salaries that get lowered, they get let go, their goods and services drop in quality, their lives get worse. And lives have been getting worse, the median salary in the U.S. of 42k in 2000 would be worth 78k in 2025 and yet the median salary today is 61k so people’s income has reduced by more than 20% in the U.S.. In Spain, where I live, the reduction from 2000 is 10%, which is less but it goes to show this isn’t an America specific thing. Wherever you’re from I suggest you calculate how much purchasing power has changed. In the U.S. the working class have told us they’re doing poorly by electing candidates that have promised radical change from what came before, candidates who recognize that the system as it was wasn’t working. Some of those ideas could be good, some are bad, but we do need new ideas. In the upcoming months I’ll upload some ideas that I’ve been wrestling with. In the meantime I would love to hear your thoughts in the comments below.
Is there anything you found off in my analysis? Would you like clarification on a certain part of it? Or anything at all you’d like to comment on.