This is scary as I moved to all cash a couple of years ago. I still don't understand how there can be a bubble in money. All I see around me is house and stock prices going up incredibly. Does a money bubble popping result in high inflation making my money in the bank worthless. Fuck. First I got burned in stocks, then in real estate, and now cash?
A "money bubble" caused by too many people wanting to keep assets in cash (rather than make investments) is deflationary. The apparent deflation is caused by the reduction in availability of credit. So the central banks are backfilling, like pumping air into a deflating balloon.
It's not arithmetically possible for everyone to hide from all risk forever. It's got to end up somewhere. Diversify, don't just hold one asset class.
What could happen is your cash becoming more valuable in a deflationary spiral. My take is you're incurring the opportunity cost today on your cash reserves. Your present value is based on a belief that the future will be deflationary over inflationary. You could model this with an estimation of the present value of your cash holdings as a function of how long you hold it and your expected inflation rates.
This is an extremely risky proposition, because under no circumstances will the Fed ever permit long term deflation.
They will literally mail cash to individual households or have cash giveaways before that happens. Or, more simply, they ask Congress to pass a law stating that all cash reserves over a certain amount are heavily taxed or confiscated entirely.
I got burned with my 1st house- buying in 06, and did just OK with buying again in 10 and selling in 13, but 'lost' (did not make another) 50% by not holding it long enough.
