Friday, January 04, 2008

Oh, if only a financial innovator would save us!

The U.S economy has been made into a voracious credit pyramid desperately needing bigger bubbles just to stay afloat. This is the consequence of the illusion we have been sold – perpetual prosperity. Propping up asset bubbles with more fiat money ultimately threatens not more just inflation but a rapid deflation when the music stops. The dollar retracing the past 40 years’ growth is mainly due to the realization that financial engineering was accepted as organic growth. It wasn’t and the jig is up. The extent of that failed paradigm finally resulted in issuing mortgages like after dinner mints and showed just how desperate we have become to simulate (no T) growth.

2 comments:

nephos said...

I wonder if both the internet bubble and the housing bubble were sponsored efforts by banks to stave off what they saw as the inevitable - stagflation for the remainder of civilization. As we run out of oil, devaluation of civilization is required, and those who hold the largest purse strings will inevitably suffer tremendously as inflation eats away at their assets.

Will the banks concoct some new quantity of false bubbly value? My guess is that it will get difficult if their ability to create a bubble hinges on credit. If not, what will it be? I look to Mr. Malechem for the heads up.

Rionn Fears Malechem said...

Don't forget about the Savings and Loan Scandal! Ronald Reagan kicked this all of for Morning in America. Could the Gold Standard have prevented all this?

I think the internet bubble was largely arbitrary. We had a bunch of companies that were hard to value, and a lot of extra money. The two sort of found each other.

The housing bubble seems a lot more purposeful to me. Houses are valued according to the most that people who live in them can afford to borrow, so their value shoots up if you lend more. This is why I think mortgages should be limited to ten years.