A superb piece by Dirk Bezemer and Michael Hudson in today's Unz Review. Couldn't miss it: Finance Is Not the Economy. I couldn't miss this insightful, albeit fairly long, piece since one of the major premises of my blog's existence is my both academic and empirical understanding of finances as merely a tool servicing a real economy, which, in the end is based around manufacturing of actual goods and services. That is also where the real GDP is. There are many wonderful insights in this article but I want to leave you here with one quote which I find particularly important:
"Asset prices can rise only by debt creation or by diverting current
income. The recognition that such debt-fueled inflation of asset prices
is a form of rent extraction is central to our analysis of its
unsustainability. By contrast, the now conventional economic models give
us no handle to even start addressing these phenomena. By viewing
capital gains as transfers instead of as income, we define the long-term
sustainability of capital gains and asset prices in terms of trends in
disposable income plus debt growth. Just as a Ponzi scheme must collapse
with mathematical certainty (even though the timing of the collapse is
uncertain), so it is with asset markets that expand faster than income
growth. The divergence between income growth and rent extraction (asset
price growth and financial transfers) is unsustainable, although, by
going global, asset markets can be kept inflated over decades."
In general, don't spare your time and delve into this important piece by Bezemer and Hudson. This will also give a new impulse for continuation of my Military Power series.
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