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What Happens When Rampant Asset Inflation Ends?

Home-prices-index-March2016

  • What Happens When Rampant Asset Inflation Ends?
    by CHARLES HUGH SMITH, http://charleshughsmith.blogspot.com/  
    The collapse of asset inflation will implode all the fiscal and financial promises based on ever-inflating assets.

    Yesterday I explained why Revealing the Real Rate of Inflation Would Crash the System. If asset inflation ceases, the net result would be the same: systemic collapse.
     Why is this so?


    In effect, central banks and states have masked the devastating stagnation of real income by encouraging households to take on debt to augment declining income and by inflating assets via quantitative easing and lowering interest rates and bond yields to near-zero (or more recently, less than zero).

    The “wealth” created by asset inflation generates a “wealth effect” in which credulous investors, pension fund managers, the financial media, etc. start believing the flood of new “wealth” is permanent and can be counted on to pay future incomes and claims. Asset inflation is visible in stocks, bonds and real estate: (chart top of post)

    read more.
The sources of asset inflation are highly visible: soaring central bank balance sheets, credit expansion that far outpaces GDP growth and ZIRP (zero interest rate policy).

The sources of asset inflation are highly visible: soaring central bank balance sheets, credit expansion that far outpaces GDP growth and ZIRP (zero interest rate policy).

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August 8, 2016 - Posted by | Economics | , , , , , , , , , , , , ,

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