> Uber is an example of what happens when central banks attempt to 'stimulate' the economy through misguided central planning. By forcing down interest rates and essentially moving spending from the future into the present, they're stimulating investment in general. But what they forget (or more likely, choose to ignore) is that investments can be just bad investments.
How do you explain things like the .com boom when interest rates were "normal"? Uber has raised a lot of money, but it's a drop in the bucket in the world of global finance (and a very small drop at that!).
I never claimed low interest rates were the only trigger for malinvestment! Just look at the south sea bubble. The dotcom boom was mis-spending by retail investors, rooted in ignorance of new technology combined with enormous hype. But because it was a fundamentally market driven boom, it ended relatively quickly with a large correction. This time it's different: it's a deliberately engineered wave of malinvestment caused by government policy. And they happily admit it!
It's not just Uber of course. There is tons of money flooding into questionable tech startups with no end in sight. In 2014 bitcoin companies alone had received more investment money than the whole internet did in 1996. It's an industry wide phenomenon.
> It's not just Uber of course. There is tons of money flooding into questionable tech startups with no end in sight. In 2014 bitcoin companies alone had received more investment money than the whole internet did in 1996. It's an industry wide phenomenon.
The total amount of VC money invested in the US in 2015 was $58.8b [1]. That is less than the operating income of Apple. It is a lot of money in some respects, but the potential rewards are also huge (look at Apple!). I think the huge valuations have more to do with the huge potential for global businesses than whatever Yellen is doing with interest rates.
The internet was a completely different place in 1996, I don't think any fair comparison can be made regarding investment. Something like a billion daily active users and the cash that can generate wasn't a possibility. The whole internet advertising business in 1996 was estimated at $267m [2] which is less than Google now brings in PER DAY (~$283m).
How do you explain things like the .com boom when interest rates were "normal"?
The answer is always going to be some variation of "the goshdurned gubmint". Maybe interest rates, maybe someone read Greenspan's tea leaves which he deliberately left sitting out to cause "malinvestment", maybe something else entirely.
How do you explain things like the .com boom when interest rates were "normal"? Uber has raised a lot of money, but it's a drop in the bucket in the world of global finance (and a very small drop at that!).