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« What Mario Draghi Said When Asked If His QE Will Unleash Hyperinflation | Main | U. S. Mint American Eagle Silver Bullion Coin Purchases Soared to Record High in 2014 »
Monday
Jan192015

Who Benefits When Bubbles Burst?

Submitted by Charles Hugh Smith from Of Two Minds

Who Benefits When Bubbles Burst?

Blowing speculative bubbles cannot possibly lead to organic growth because speculative bubbles fatally undermine the real economy.

An astute reader recently posed an insightful question: we all know who benefits from asset bubbles in stocks, bonds and real estate--owners of assets, banks, the government (all those luscious capital gains and rising property taxes), pension funds, brokers and so on.But who benefits from the inevitable collapse of these asset bubbles?

If asset bubbles end badly for virtually every participant, then why does the system go to extremes to inflate them? This is an excellent question, as it goes right to the heart of our dysfunctional Status Quo.

Broadly speaking, there are three possible answers:

  1. The system has no choice left but to blow serial bubbles.
  2. Bubbles are domestic opportunities for Shock Doctrine-type crises that enable further consolidation of power.
  3. Those in charge of the Status Quo believe the fantasy that the next bubble will usher in the long-awaited return to organic growth, i.e. expansion that isn't dependent on central bank stimulus, enormous fiscal deficit spending, ginned-up statistics, etc.

Let's consider each possible answer more closely.


Read more...

 

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