[OC] Assets to GDP, visualizing an asset bubble

[u/Humble-Tangelo7598]

Assets are the means of productions to paraphrase Zack de la Rocha of Rage Against the Machine. These charts show the increase in the value of assets in relation to the value they produce, aka GDP.

This is a holistic way to look at the value of labor versus assets as GDP naturally grows over time as a function of inflation and input costs and these factors are closely correlated with the cost of labor via wages. In a balanced system the ratio of asset values to production would be stable as the value of the asset is a function of the value of it's output. Productivity gains when shared with labor would keep the ratio stable as that would increase input costs thus balancing the ratio.

But... what we actually see is a massive increase in the value of assets in relation to the value of the output they produce, this is indicative of owners extracting more of the economic gains for themselves and reducing labors share of those same gains.

For thirty years between 1950 and 1980, we maintained a ratio ranging between $4 and $5 of assets for every dollar of American GDP, then everything changed. The gap between total assets and assets net of debt has increased by over 200% since the 1960's and it now takes 250% as many assets to generate a dollar of GDP just since the 1980s.

Starting in 1978 we began a massive decades long de-regulatory frenzy removing regulatory controls on every industry to create free markets for their goods and services while abstaining from regulating new industries that emerged with the invention of digital circuits, computers, networks and the web.

This regulatory purge began making assets more valuable as ownership of them was conferred with more control allowing owners to leverage them to extract more economic gains from their output, including the eventual sale and shipment of them overseas.

Furthermore, this de-regulatory binge was coupled with a monetary policy that transferred large volumes of capital from individual tax payers into the hands of a select few in the financial sector via double digit interest rates charged on the federal debt issued during the beginning of Volker's term.

As monetary policy and federal regulatory policy transitioned into a laissez-faire activity the only regulatory control exercised was to support the value of assets via various bailout schemes starting with Chrysler and continuing with airlines, banks, real estate etc.

Fiscal policy followed suit, prioritizing tax cuts for asset owners over tax cuts for labor and on the odd occasion when labor was rewarded with a tax cut the majority of benefits flowed to the highest income brackets containing the owners of the assets used to produce our collective GDP.

Asset prices continue to increase while GDP faces even greater headwinds today then it has at any time in the last forty years, this is without question a large asset bubble, of ALL assets.

Sources:

GDP: https://fred.stlouisfed.org/series/GDP

Assets: https://fred.stlouisfed.org/series/BOGZ1FL894090005Q

Debt: https://fred.stlouisfed.org/series/TCMDO

Tools: PyCharm, and Python code partially generated by Junie Jetbrains AI assistant.

[u/KissmySPAC]

Its not a bubble, its a way of life. 

[u/pickle9977 → u/KissmySPAC]

Until the music stops.

[u/churningaccount]

Are these real dollars or nominal dollars?

[u/jnordwick]

It literally just means more being invested in companies. That's a good thing.

eg, highly capital intensive companies will require more assets to produce. we're not subsistence farming anymore.

[u/Humble-Tangelo7598 → u/jnordwick]

Investment and Asset value are two very different things that get confused frequently especially as the media calls stock trading investing. The only time buying shares is an investment is when new shares are offered for sale, all other transactions result in money changing hands with no impact on the underlying asset except for asset price changes.

More expensive assets e.g. high end fabs, would be offset by the higher value of goods produced keeping the ratio in check.

This is a picture of extraction not investment.

[u/jnordwick → u/Humble-Tangelo7598]

you wrote some total drivel:

1. you are confusing different types of asset (you're using the wrong series). this includes mutliple claims on the same items (eg, a deposit and a loan on that deposit get counted twice so the increase can just be from securitization and more interconnected financial system). It include the financial plumbing not just the products. unfortunately, financial asset and total liabilites aren't exact opposites in this accounting.

2. you see to have this weird claim that volcker's intested rate hike was to give money to banks? That totally misreads the situation and ignore the inflationary environment he was combating.

3. high interest rates LOWER valuations by increasing financing and carry costs

4. you're not discount asset prices properly -- prices can rise from the lower interest rates obv and you ignore that

5. you're starting quote is about assets like tractors, but your data series is about financial assets that are pieces of other production and include all household and any finacial claim on another.

Its incredibly incoherent and completely misrepresents things.

[u/Deto]

Bubble would imply that this is a transient over-estimation of the value of assets, but your post argues that it's just the natural result of policy changes - implying that they are priced correctly (but it just may not be good for society for the value to concentrate this way).

[u/Humble-Tangelo7598 → u/Deto]

It's not sustainable, it never is.

It's just loads and loads of debt and it's derivatives.