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Free Markets? Not in our Centrally Planned American Economy!

February 28, 2013

Why Central States/Banks Inflate Asset Bubbles, and Why They Implode (February 28, 2013)

By Charles Hugh Smith – of Two Minds Blog

Inflating phantom assets to collateralize expanding debt is failing due to diminishing returns on stimulus, zero-interest rates, money-printing and monetization of Federal debt.

That the policies of central states and banks have led to one disastrous asset bubble after another over the past 15 years is undeniable. This poses the question: is this serial bubble-blowing intentional, or are the bubbles merely unintended consequences of the neoliberal, neofeudal model of financialization that dominates global finance?

The answer boils down to this: inflate assets or die. The only way to support consumption in an era of declining wages is to enable more borrowing, and the only way to enable more borrowing is to:

1. Lower interest rates to near-zero so stagnant income can leverage higher debt

2. Inflate assets to create phantom collateral that can then support additional debt.

Central states live off taxes skimmed from wages and profits. If wages are stagnant, the state needs profits and capital gains to rise to support higher tax revenues.

In other words: inflate assets or die.

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