Stock Market, Bitcoin and Fake Wealth Housing Will Be Eliminated – Mish Talk
Why do pigs affect the economy?
Please consider why the beetle is so important to the economy by Michael Pettis.
Orifice, a word coined by a Canadian-American economist in the 1950s, is the temporary gap between the perceived value of a portfolio of assets and its long-term economic value. Economies sometimes create haze systematically, unleashing significant economic consequences that economists rarely understand or discuss.
In a famous paragraph of his book The Great Crash 1929, John Kenneth Galbraith introduced the term bezzle, an important concept that should be better known among economists than it is now. The word is derived from embezzlement, which Galbraith described as “the most interesting crime”. As he noted: “Alone among the various forms of theft [embezzlement] It has a time parameter. Weeks, months, or years may pass between the commission of a crime and its discovery. (This is a period, by the way, when the embezzler has his gains and the embezzler, oddly enough, does not feel the loss. There is a net increase in psychological wealth.)”
In this sense, the crater is not only created by Ponzi planners, such as Madoff, but also in the form of companies – such as Enron, for example, or WorldCom – whose accounting frauds lead to inflated assets and excessively high stock valuations. Until the accounting frauds are exposed, there is a mass increase in psychic wealth as the value of the crater rises.
The crater effect, then, is to temporarily push the total recorded wealth up before dropping it to or below its original level. Collectively, the hatch looks great at first and can lead to higher than usual spending until the truth comes in, after which it feels bad and can cause a spending crash.
When asset prices rise for reasons other than real increases in their production capacity, something completely different happens. The general economy is not better off because there will be no corresponding increase in the productive capacity of that economy.
However, the owner of such assets feels richer – albeit only temporarily – because in the long run, the prices of the assets eventually converge to a value that represents their real contribution to the production of goods and services.
More importantly, they find it difficult to accept the implications of the crater on the way economic activity is measured and GDP is calculated, as the crater distorts the relationship between economic activity and economic growth, mainly because there is – during the creation of the crater – no way to distinguish between real income and/or dividends, enhanced income and/or dividends.
There are other ways in which crater can affect GDP calculations. One way is to combine real and speculative profits in business sectors in which the buying and selling of assets (such as land, goods, and inventory) are part of normal business operations.
Another way the nozzle can slip into the GDP accounts is by raising the price of assets in the market, which in turn allows for more asset-based borrowing.
But as Minsky explained, “During periods of prolonged prosperity, the economy moves from the financial relationships that make the system stable to the financial relationships that lead to an unstable one.” Since the crater is, by definition, temporary (although it may last for a few years or even a decade or two), at some point the crater will be eliminated, and its removal will reverse previous support for the economy. When that happens, what seemed to be a virtuous cycle becomes a vicious cycle.
Unfortunately, the history of the crater indicates that while households and ordinary workers absorb few of the benefits from the construction of the crater, they tend to absorb most of the costs of its reversal: it is perhaps no coincidence that periods when large volumes of orifice are then destroyed always seem Almost as much as it suffers from rising income inequality.
The cost of extinguishing the nozzle is proportional to the degree of psychological wealth that the nozzle created earlier: the more nozzle created, the more painful the adjustment. Also note how much the nozzle build-up and self-extinguishing processes are boosted. I would argue that this is why an investment and asset boom is inevitably followed by recessions or lost decades.
the main points
- Collectively, the hatch looks great at first and can lead to higher than usual spending until the truth comes in, after which it feels bad and can cause a spending crash.
- When asset prices rise for reasons other than real increases in their productive capacity, the overall economy is not better off because there will be no corresponding increase in the productive capacity of that economy.
- Bezzle always reflects
- The cost of extinguishing the nozzle is proportional to the degree of psychological wealth that the nozzle created earlier: the more nozzle created, the more painful the adjustment.
The more nozzle created, the more painful the adjustment. This applies to housing, the stock market, bitcoin, and assets in general.
Until recently, the only life Bitcoin experienced was the speculative environment of endless quantitative easing and cheap money.
From pennies to over $60,000 and now about $21,000.
Go to follow
How much is the current bezzle speculation price? 10%, 25%, 50%, 90%, or 100%?
Has US production capacity risen as housing prices have risen, or has the Federal Reserve artificially inflated prices?
China’s real estate bubble is even bigger. It’s collapsing now. For discussion, please see Real Estate Bailouts In China Are Coming, But They Will Fail, And What About The US?
Finally, Bezzle is another good reason to expect an extended period of weak growth, whether or not a recession comes with it.
This post originated at MishTalk.Com
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