> How can you tell if a tech bubble is about to burst?
A bubble bursts when debt obligations exceed the ability to maintain that debt for multiple parties simultaneously, which results in a collapsing debt spiral.
It is challenging to tell when the collapse is close and even once it has started. Because it is challenging to predict the moment of burst the best course of action is to limit exposure by transferring the high risk obligations to someone else before everyone else rushes to do the same.
> A bubble bursts when debt obligations exceed the ability to maintain that debt for multiple parties simultaneously, which results in a collapsing debt spiral.
Is this true? Not challenging this but hadn't heard bubbles tied to debt instead of market prices on equity or similar valuations.
It’s more about debt than market prices. You can always shift to accommodate inflation by raising prices or shrinking your product as necessary to maintain your margin. Debt is different because it’s an obligation you don’t control.
The more debt you carry the more leveraged you become, which is exposure to risk. Another way to think of that is brittleness, which is subject to breaking. Investments are forms of debt, money locked into a financial vehicle.
A bubble bursts when debt obligations exceed the ability to maintain that debt for multiple parties simultaneously, which results in a collapsing debt spiral.
It is challenging to tell when the collapse is close and even once it has started. Because it is challenging to predict the moment of burst the best course of action is to limit exposure by transferring the high risk obligations to someone else before everyone else rushes to do the same.