{"id":915,"date":"2023-04-25T14:28:26","date_gmt":"2023-04-25T12:28:26","guid":{"rendered":"https:\/\/hrvhealth.org\/blog\/?p=915"},"modified":"2025-03-04T13:26:52","modified_gmt":"2025-03-04T12:26:52","slug":"were-still-not-over-the-2008-financial-crises","status":"publish","type":"post","link":"https:\/\/hrvhealth.org\/blog\/?p=915","title":{"rendered":"We&#8217;re still not over the 2008 financial crises"},"content":{"rendered":"\n<p>A big proportion of wealth is a fiction.<\/p>\n<p>Before your natural instincts kick in, take a look at how much of finance works.<\/p>\n<p>Let\u2019s use the example of Bitcoin, which until January 2009 did not exist. As of today, the total market capitalisation is over half a trillion US$<span class=\"footnote_referrer\"><a role=\"button\" tabindex=\"0\" onclick=\"footnote_moveToReference_915_1('footnote_plugin_reference_915_1_1');\" onkeypress=\"footnote_moveToReference_915_1('footnote_plugin_reference_915_1_1');\" ><sup id=\"footnote_plugin_tooltip_915_1_1\" class=\"footnote_plugin_tooltip_text\">[1]<\/sup><\/a><span id=\"footnote_plugin_tooltip_text_915_1_1\" class=\"footnote_tooltip\"><a href=\"https:\/\/coinmarketcap.com\/currencies\/bitcoin\/\">Bitcoin<\/a><\/span><\/span><script type=\"text\/javascript\"> jQuery('#footnote_plugin_tooltip_915_1_1').tooltip({ tip: '#footnote_plugin_tooltip_text_915_1_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top center', relative: true, offset: [-7, 0], });<\/script>. And yet it\u2019s nothing. It all exists digitally. No assets backing it up. The only return you can get is the appreciation in value. That\u2019s driven by supply and demand. If the demand disappears, so does the value. You\u2019re left with nothing.<\/p>\n<p>The same is true for other assets too.<\/p>\n<p>Let\u2019s take companies. There, at least you have some tangible value &#8211; the difference between the assets and the liabilities, which is the nett asset value (NAV). But there is often a big difference between the market capitalisation and the NAV. The market capitalisation is the number of listed share multiplied by the share price.\u00a0<\/p>\n<p>Let\u2019s take Tesla. The NAV is $46 billion. The Market cap is $514 billion. The difference is $468 billion. Where does that difference come from?<\/p>\n<p>Now a company is different from Bitcoin in a very important way: a company has earnings. The difference between the Market cap and the NAV is the value of future earnings at an expected rate of return. This is where the magic in the numbers starts to happen.<\/p>\n<p>The expected rate of return is based on the risk free rate plus the risk differential. If the company has a triple A rating the risk differential is virtually zero. With more risk, the rate goes up.<\/p>\n<p>The important part of this is the risk free rate, which after quantitative easing (QE) was introduced to deal with the financial crises in 2008 was reduced to almost zero. And with that company values increased.\u00a0<\/p>\n<p>In its simplest form, a company&#8217;s value is calculated as the earnings (E) divided by the expected rate of return(i): E\/i. If earnings are $100,000 and i = !0% the value = $1,000,000. If the expected rate of return drops to 5%, the value is now $2,000,000. So when QE was introduced, the value of companies increased proportionately.<\/p>\n<p>QE creating a massive fictional value.<\/p>\n<p>Now, as they wind down QE, and expected return increases, values will go down. All that magic money will disappear.<\/p>\n<p>We\u2019ve already had a couple of bank crises. Governments will try and convince us that they have a tight handle on things.<\/p>\n<p>Once the rabbit is out of the hat, it\u2019s not going back.<\/p>\n<div class=\"speaker-mute footnotes_reference_container\"> <div class=\"footnote_container_prepare\"><p><span role=\"button\" tabindex=\"0\" class=\"footnote_reference_container_label pointer\" onclick=\"footnote_expand_collapse_reference_container_915_1();\">References<\/span><span role=\"button\" tabindex=\"0\" class=\"footnote_reference_container_collapse_button\" style=\"display: none;\" onclick=\"footnote_expand_collapse_reference_container_915_1();\">[<a id=\"footnote_reference_container_collapse_button_915_1\">+<\/a>]<\/span><\/p><\/div> <div id=\"footnote_references_container_915_1\" style=\"\"><table class=\"footnotes_table footnote-reference-container\"><caption class=\"accessibility\">References<\/caption> <tbody> \r\n\r\n<tr class=\"footnotes_plugin_reference_row\"> <th scope=\"row\" class=\"footnote_plugin_index_combi pointer\"  onclick=\"footnote_moveToAnchor_915_1('footnote_plugin_tooltip_915_1_1');\"><a id=\"footnote_plugin_reference_915_1_1\" class=\"footnote_backlink\"><span class=\"footnote_index_arrow\">&#8593;<\/span>1<\/a><\/th> <td class=\"footnote_plugin_text\"><a href=\"https:\/\/coinmarketcap.com\/currencies\/bitcoin\/\">Bitcoin<\/a><\/td><\/tr>\r\n\r\n <\/tbody> <\/table> <\/div><\/div><script type=\"text\/javascript\"> function footnote_expand_reference_container_915_1() { jQuery('#footnote_references_container_915_1').show(); jQuery('#footnote_reference_container_collapse_button_915_1').text('\u2212'); } function footnote_collapse_reference_container_915_1() { jQuery('#footnote_references_container_915_1').hide(); jQuery('#footnote_reference_container_collapse_button_915_1').text('+'); } function footnote_expand_collapse_reference_container_915_1() { if (jQuery('#footnote_references_container_915_1').is(':hidden')) { footnote_expand_reference_container_915_1(); } else { footnote_collapse_reference_container_915_1(); } } function footnote_moveToReference_915_1(p_str_TargetID) { footnote_expand_reference_container_915_1(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_915_1(p_str_TargetID) { footnote_expand_reference_container_915_1(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }<\/script>","protected":false},"excerpt":{"rendered":"<p>A big proportion of wealth is a fiction. Before your natural instincts kick in, take a look at how much of finance works. Let\u2019s use the example of Bitcoin, which until January 2009 did not exist. As of today, the total market capitalisation is over half a trillion US$[1]Bitcoin. And yet it\u2019s nothing. It all&hellip; <a class=\"more-link\" href=\"https:\/\/hrvhealth.org\/blog\/?p=915\">Continue reading <span class=\"screen-reader-text\">We&#8217;re still not over the 2008 financial crises<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[75],"tags":[88,94],"_links":{"self":[{"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=\/wp\/v2\/posts\/915"}],"collection":[{"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=915"}],"version-history":[{"count":5,"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=\/wp\/v2\/posts\/915\/revisions"}],"predecessor-version":[{"id":1513,"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=\/wp\/v2\/posts\/915\/revisions\/1513"}],"wp:attachment":[{"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=915"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=915"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hrvhealth.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=915"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}