John Plender: Does another 1929 crash loom?

Alan Greenspan, when chair of the Federal Reserve, famously remarked during the dotcom boom of the late 1990s: “Bubbles generally are perceptible only after the fact. To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong. Betting against markets is usually precarious at best.”

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief," said Greenspan in October 2008

https://www.internetional.se/assetpricebubbles.htm

This view combines an implicit denial of the central banker’s responsibility for financial stability with a blind commitment to the Chicago school’s belief in the efficient market hypothesis, which derives from a conviction that unregulated market prices reflect all available information. 

For an obvious refutation, look no further than the South Sea Bubble in 1720. As the economic historian Richard Dale has shown in his definitive account The First Crash

https://www.bokus.com/bok/9780691170947/first-crash/

Archibald Hutcheson, member of parliament for Hastings, used well-established techniques, including price/earnings ratios and the calculation of the net present value of future revenues, to demonstrate to his fellow parliamentarians that the market valuation of the South Sea Company had shed any semblance of rationality or connection with economic fundamentals.

Today’s euphoria is chiefly around AI and crypto. The curious thing is why people feel a need for a debate on whether they constitute a bubble, given that they so manifestly meet all the usual bubble prerequisites.

To be clear, this is not like the 17th-century Dutch tulip mania; it is more akin to the 19th-century railway boom in which a vast capital investment in railway infrastructure — though accompanied by many bankruptcies — left a very valuable economic legacy. 

Then, within and beyond AI, there is the build-up of leverage in private markets.

All this makes a plausible case for a 1929-type scenario. That said, it is notoriously difficult to predict when a bubble will burst. 

So what could trigger a crash? Higher-than-expected inflation is one obvious candidate. 

If the burgeoning numbers for money market mutual funds — a form of quasi money — are included alongside the conventional broad money data, money growth is on the up.

Inevitable, too, that global capital will reprice US risk and question the status of the dollar as the world’s pre-eminent reserve currency. 

US will continue to act as the ever constant borrower of first and last resort in the global economy. So this rerun of the Roaring Twenties will not be followed by a Great Depression. 

The prognosis for 2026 is thus for more froth before the crash, more Fomo and growing financial stress. 

Prepare to reconcile yourself to protracted stagflation and unremitting populist political pressure. 

John Plender Financial Times 3 January 2026

https://www.ft.com/content/7987310a-5c90-4976-b730-3559502006e2

John Plender is my number One Guru. He has written for the FT since 1981, before which he was financial editor of The Economist.

His latest book is Capitalism: Money, Morals and Markets (Biteback).

Capitalism | Biteback Publishing

 

67-year-old Newton in the spring of 1720 sold his South Sea stock for a tidy profit of £20,000. 

But then the madness gripped him. As South Sea shares just kept on rising, Newton reversed course and ploughed his proceeds back in. He doubled down, converting his government bonds into even more South Sea Company stock.

Unfortunately, the bubble burst in the autumn of 1720, wiping out the ageing Newton’s savings. 

“I can calculate the motion of heavenly bodies, but not the madness of people.”

https://englundmacro.blogspot.com/2024/01/since-its-2022-bottom-s-500-adding-more.html

South Sea Company

https://en.wikipedia.org/wiki/South_Sea_Company

Others offer refined versions of the irrationality thesis advanced by Charles Mackay in 1841 in his celebrated book Extraordinary Popular Delusions and the Madness of Crowds.

https://englundmacro.blogspot.com/2020/11/what-south-sea-company-can-teach-us.html

Charles P. Kindleberger’s “Manias, Panics and Crashes”

 “There is nothing so disturbing to one’s well-being and judgment as to see a friend getting richer.”

 An infamous example was the South Sea Bubble in 1720.  

https://englundmacro.blogspot.com/2024/07/1929-202-trend-is-your-friend-and-then.html

Ai, Britain’s 1846 Railway Mania and Tulips

https://englundmacro.blogspot.com/2025/11/ai-britains-1846-railway-mania-and.html