2008 déjà vu? Here's how Silicon Valley's boom could collapse...

Summary:Silicon Valley is booming after nearly a decade in recession. But will the boom turn to bust long before it has had time to become a bubble?

Are we in a bubble? is a common question as I chat with people at various events around Silicon Valley.

The concern is that if it's a bubble then a crash is not far off. But I'm far more worried that the economy will crash long before Silicon Valley's boom has had a chance to bubble and burst.

I see the current boom as a resumption of where Silicon Valley was in mid-2008. Funding was coming back and so were jobs and optimism about the future.

But that momentum was cut short by Wall Street's financial meltdown. It had a huge effect on Silicon Valley. Funding across all startups was put on hold, re-evaluated, and thousands of jobs were cut; Sequoia Capital published its infamous "R.I.P Good Times" slide deck.

Today funding is back in a big way, and so it seems are IPOs with a stellar opening by LinkedIn. Money returned to investors finds its way into new startups, which is great for Silicon Valley and its capital investment cycle.

Silicon Valley is finally back in business after a long decade spent digging out from the dotcom bomb. It's a boom that should last a solid two to three years given the track record of prior business cycles.

But are we be headed for another 2008-like disappointment?

Government and consumer debt levels are huge, home sales are weak, employment growth is inconsistent, and Wall Street firms continue to engage in high risk investment strategies with destabilizing effects. Bad economic signs are everywhere.

For example, today Reuters reported: Cooling employment casts shadow on recovery

The economy may be in for a long period of soft growth after employers hired the fewest number of workers in eight months in May and the unemployment rate rose to 9.1 percent.

But in Silicon Valley everyone is hiring, PR firms are over-loaded with work, conferences are full, and startup engineers are dining out on sushi rather than Top Ramen. It would be a shame if all this hard-earned boom were cut short as it was in 2008. But that's a very real risk, imho.

- - -

We've been here before -- boom and bust in Silicon Valley

Why some investors vow to NEVER buy stocks again -- The Buzz - Jun. 1, 2011

Guest Post: The Economic Death Spiral Has Been Triggered | zero hedge



Topics: Legal, Banking, CXO, IT Employment

About

In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to make a living as a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley.Tom arrived in San Francisco in 1984, and has covered US technology markets for leadi... Full Bio

zdnet_core.socialButton.googleLabel Contact Disclosure

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.