Monday, October 3, 2016

Tech Bubble Bursting, Its Real Folks

Okay, so you might be wondering why some tech founders are claiming that we are in a tech bubble. Some folks have obliquely explained with just confused more people so I will give the ELIA5 explanation.

The underlying trend first popped its ugly head in the 2008 financial crisis. That happened because young people stopped buying houses to the point where demand for houses reached zero and than of course house prices fell to bottom and those who had house mortgages dumped those.

Loose money and loose bank standards only sped up the process but was not the root cause. The root cause the massive amounts of student loan debts carried by young people which causes those same people to put off things like house purchases,etc.

That less housing buying, now at a 50 year low, impacts other parts of the economy as now the GDP is only increasing 3% per year. On top of that less young people form both startups and small businesses due to the heavy burden of student loan debt.

The $1.5 trillion in student debt acts as a mortgage on future increasing GDP growth as we do not get the benefit of that multiplier of 3x or 5x that would happen if that same $1.5 trillion was spent on something else instead of debt. Thus we are actually missing out on an increase of 7% to 12% in GDP per year based on self-interest.

No more big start-up unicorns for awhile and people switching to very small startups.  The only silver lining is that maybe the thing gets solved in the next 15 years due to a collection of USA states through their public colleges giving those HS graduates that can pass the full AP course and examples a tuition free 2-year degree(Indiana is one of the states through their public colleges making such efforts, hopefully more USA states sign on to that initiative.).