Thursday Thoughts: the promise for more “free” things and the bursting of bubbles

Any politician should be endlessly ridiculed for using the word “free”

“Free” means without cost, and clearly every “free” thing promised by the government comes at a steep cost — the complete opposite of free.

The “free” daycare promised by the current Ontario government which would saddle Ontarians (and future Ontarians) with more unrelenting debt is the latest example of promising more “free” stuff to maintain their “soft dictatorship”.

Just as there’s no such thing as “free” healthcare, Ontarians won’t be getting “free” daycare. The bureaucracy and inflated costs of these services are neatly obfuscated with taxes, deficits and inflation. If you simply eliminated the bureaucratic component, Canadians would have an awful lot of additional savings to use to pay for these services for a lot less than they already pay, and can arrange within their own communities to help those that can’t afford it rather than relying on the nanny state to do it for them.

As more and more “free” things are promised, more and more voters feel entitled to the freebies. More and more voters will keep asking for free stuff, ceding more and more power to the bureaucrats. But like in any socialist system spiraling out of control, eventually the voters become so lazy, so irresponsible with a sense of entitlement so big, that they run out of productive people’s money. Canada is well on their way to being the next Venezuela.

Tech bubble deflates a tad, but has yet to burst

Speaking of unmanageable debt loads, the leverage and cheap money fueling many market bubbles and overpriced stocks, Netflix for example, gave a preview of what’s to come in the past week. FANG stocks dropped around 20% from their highs.

Just like BitCoin at 7,000, distant from its 20,000 highs, Netflix et al. still have a long way to correct. I posited in Netflix and BitCoin have disturbing similarities, Netflix’s rational valuation lies somewhere between 25-50 per share. While BitCoin has undergone a significant portion of its necessary correction, Netflix has barely touched the tip of the iceberg.

Bond markets and interest rates will catalyze the correction, as eventually the cheap money double whammy will hit Netflix with a drop most roller coasters would be envious of.

The bubbles won’t burst just yet if big government continues to shield it from pins

These corrections may reverse, as the bubbles can be reinflated in the short term. They will eventually burst though from their sheer size, not requiring a pin at all.

The metaphorical pin, interest rates, can be artificially suppressed even longer with the central banks printing more dollars, buying bonds and trying to keep interest rates low. As the amount of outstanding debt grows, i.e. the debt that has no chance of being paid off with growing interest rates, the central banks are left trying to battle the natural market forces by doing the exact thing that strengthens those market forces — encouraging more borrowing of debt that has no chance of being repaid.

Of course, the sheer size of the bubble will then burst. The natural market forces will overwhelm any artificial stimulus, and hyper-inflation won’t make an iota of difference, other than completely destroy any remaining semblance of savings and productivity in the nation.

It doesn’t matter then if Netflix is valued at 50,000 per share if $50,000 can’t even buy you a loaf of bread.  In real money (purchasing power) terms, these bubbles will pop one way or another.

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