E Pluribus Unum

I'm reading dot.con, by John Cassidy, which is a short history of the Internet bubble. In it, he details the four classic steps in a bubble:

1. Displacement
   Something changes people's expectations about the future. A few early adopters cash in by jumping in early.
   
2. Boom
   Skepticism changes to greed as people follow the leaders.
   
3. Euphoria
   Established rules of investing go out the window; prices lose all connection with reality; people know it can't last forever but they still want to cash in while the getting is good.
   
4. Bust
   Something triggers a stampede and prices plummet. Suckers are left holding the bag.

Then this morning I read Tom Friedman's column entitled The 9/11 Bubble.

The very reason Mr. Bush had the luxury of launching a war of necessity in Afghanistan and a war of choice in Iraq, without a second thought, was because of the surpluses built up by the previous administration and Congress. Since then, the Bush team has been slashing taxes in the middle of two wars, weakening the dollar and amassing a huge debt burden - on the implicit assumption that nothing will go wrong in the future.

But what if there is another 9/11 or war of necessity? We're cooked. The tax revenue won't be there, so the only option will be more borrowing and a weaker dollar. But what happens if the Chinese and other foreigners, who now hold over 40 percent of our Treasury securities, decide they don't want to hold these depreciating dollars anymore, let alone buy more?

It is now clear to me that we have followed the dot-com bubble with the 9/11 bubble.

Both bubbles made us stupid. The first was financed by reckless investors, and the second by a reckless administration and Congress. In the first case, the public was misled by Wall Street stock analysts, who told them the old rules didn't apply - that elephants can fly. In the second case, the public was misled by White House economists, peddling similar nonsense. The first ended in tears, and so will the second. Because, as the dot-com bubble proved, elephants can fly - "provided it is not very long."