There is a bubble in the start-up world today because new companies are creating real economic value. This differs sharply from the 2000-era hype machine, though there is definitely some hype today as well. Just look at my speaking schedule.
Reality outside of the world of start-ups is getting fairly ugly. Major businesses, like GM, are firing smart people. Small businesses can’t survive. More and more people are joining the un-insured, and someone is going to need to pay the price for all of this.
Internet usage will grow dramatically during this downturn, as people look for stuff to do. Monetization will be tricky, but it will likely be centered around decentralized buyers and sellers in micro-markets with a lot of successful infrastructure providers.
When this all started, most of the banks were collectively facing trillions of dollars worth of write downs and losses, which would put many of them out of business. My prediction is that all significant gains since 2001 in the real estate markets will be lost. The funny money created by Wall Street bankers to float internet companies re-materialized as complex sub-prime derivatives and hedges. The raw asset value of the housing market no longer supports the current housing bubble, and money is evaporating as banks can not maintain their reserve ratios. Even Bank of America warned about this with the Merril Lynch acquisition.
The US stock markets have priced all of these losses in already, so I don’t expect too much more carnage. We have a different worry. If oil goes above $175 per barrel and stays there for some time, we face massive economic problems that may result in the collapse of numerous financial institutions, as the very way that we lead our lives in the United States will become economically unfeasible.
Despite all of this craziness, it’s one of the best times in history to start a business, especially if you can afford to. Everything is getting cheaper by the day.
