So the government tries to recover the happy Bubble Economy years by getting debt growing again, hoping to re-inflate real estate and stock market prices. That was, after all, the Golden Age of finance capital’s world of using debt leverage to bid up the book-price of fictitious capital assets. Everyone loved it as long as it lasted. Voters thought they had a chance to become millionaires, and approved happily. And at least it made Wall Street richer than ever before – while almost doubling the share of wealth held by the wealthiest 1 per cent of America’s families. For Washington policy makers, they are synonymous with “the economy” – at least the economy for which national economic policy is being formulated these days.
The Obama-Geithner plan to restart the Bubble Economy’s debt growth so as to inflate asset prices by enough to pay off the debt overhang out of new “capital gains” cannot possibly work. But that is the only trick these ponies know. We have entered an era of asset-price deflation, not inflation. Economic data charts throughout the world have hit a wall and every trend has been plunging vertically downward since last autumn. U.S. consumer prices experienced their fastest plunge since the Great Depression of the 1930s, along with consumer “confidence,” international shipping, real estate and stock market prices, oil and the exchange rate for British sterling. The global economy is falling into depression, and cannot recover until debts are written down.
h/t to The Barefoot Bum
The Obama-Geithner plan to restart the Bubble Economy’s debt growth so as to inflate asset prices by enough to pay off the debt overhang out of new “capital gains” cannot possibly work.ReplyDelete
This is not precisely correct: their plan can "work" -- in a sense -- by inflating (creating a bubble) in the last commodity available: money. Look for a low of monetary deflation around mid-2009 and hyper-inflation of the currency near the end of 2009 or the beginning of 2010.
Asset price deflation in real terms (i.e. labor time) is inevitable, though.