The everything bubble is bursting

By: Reed Morris

What’s going on?

Over the past few years, the world has been fueling the growth of massive and extremely valuable bubbles. Much like the dot com bubble back in the late 90’s and early 2000’s people started pouring a mass amount of money into the .com space. Unsurprisingly however, the bubble could only get so big and it eventually burst, causing a lot of economic troubles and loss of money. What we are seeing now is similar to the bursting of the .com bubble, but our current bubble is everything.

In the graph below you can see some crashes throughout recent history. The spike above the 2000’s represents the dot com bubble bursting, the smaller spike after, and the subsequent drop, shows the housing bubble popping, and on the far right, we can see where our economy is now, and the absurdly large bubble we are on the cusp of bursting.

What’s Bursting?

If you are currently investing and/or you’re like me and follow the stock market out of interest, you will know that everything is going down. Companies like Amazon, Shopify, Carvana, Netflix, and Alphabet are all hard down right now. The trend to notice however is that most of the stocks that are heavily down are tech stocks, but in our current world tech stocks are the most important. The stock market is taking a hit and barely hanging on by the skin of its teeth, and as such, we need to be prepared for an all out economic crash in the coming months.

On the more questionable side of investing, the crypto and NFT markets are down exponentially. When the crypto and NFT markets peaked in November of 2021, the WEB3 world was in paradise, there were new opportunities, absurd amounts of cash flow, and there was always someone willing to buy the next NFT.

Since November however, the market has taken a slight downturn. Some coins and NFT’s stayed up; some even grew, but most started slipping. In the spring of ‘22, the crypto market took the hardest hit in its history. So-called “stablecoins” plummeted, spreading fear through the economy and causing a lot of people to sell, which in turn caused the rest of the market to collapse.

‘Terra Luna’ a “stablecoin” collapses and loses 99% of its value overnight.
Image taken from: 0&source=images&cd=vfe&ved=0CA0QjhxqFwoTCPCyxOqjmfgCFQAAAAAdAAAAABAO

‘Bitcoin’, one of the first and longest lasting cryptocurrencies, has lost over 600 billion dollars in market value since November, and on top of that, the rest of the crypto market as a whole has lost over 1 trillion dollars since this fall. This amount of money being lost is unfathomable.

On the NFT side of things, sales are also down an extreme amount. Since its peak in November, sales of NFT’s on major trading platforms has gone down around 92%. The collapse of the WEB3 space will truly test the strength of the community around it and we will see where it goes from here.

Why is everything popping?

The main cause of this bubble pop is a problem our country is facing and a problem that needs to be addressed. Inflation. Inflation is going up and showing no signs of stopping. The main cause for inflation was the fact that over the past two years, money has essentially been free to borrow. During the pandemic, interest rates were slammed through the floor and people started taking advantage of that. People were borrowing money to help run their businesses, and other people were borrowing even more money to invest in those businesses. This unsustainable cycle can go on for a while but it eventually needs to be stopped.

The only tool the government has in its economic toolbox is this big scary sledgehammer called “Raising interest rates”. When people hear that the government is going to raise interest rates, they get scared and scramble. These people don’t want to have to pay interest on their borrowed tubs of money, so the first thing they turn to is selling stock.

The reason these companies are now collapsing is because when a company is growing, people don’t really care if it’s making much money, they just care about the growth. The thing about raising interest rates is that people don’t want to invest anymore, and these companies stop growing, so people finally decide to think, “Hey, is this company actually worth anything and will I actually make money long term?” And in most of these bubble situations, the answer is absolutely not.

Is this the worst it will get?

I wish. Truly I wish it was the worst that this is going to get. The government knows the only way to stop inflation is by heavily raising interest rates, but that is the last thing it wants to do. If it suddenly and greatly raised interest rates to stop inflation, the economy would collapse, the bubbles would all pop, and the country would be facing another deep recession. Instead of stomping its foot and stopping inflation, the government has been skirting the idea.

At first the government just SAID it were going to raise rates. This had almost no effect and inflation kept on growing. So they finally raised interest rates but on an extremely minuscule scale, nowhere near enough to fix inflation. Inflation continued to grow and so the government did it again, and once again, no effect.

The scary thing is, the amount that interest rates have been raised is nowhere near enough to reverse inflation, but the two super small bumps in interest rates that the government has hit the economy with are already causing a ton of things to implode. Inflation is going up, the economy is going down quickly, and we’re just getting started. Buckle your seats everyone. We’re in for a ride.