Wealth Cannot Be Printed
This editorial at MNDaily does an excellent job of taking down the idea that asset inflation is a substitute for a real economy. "For generations of economists, it used to be a truism that 'wealth creation' implies capital formation in terms of generating income-creating tangible assets.To indiscriminately put this label of 'wealth creation' on rising asset prices in the absence of any income creation is plainly a novel usurpation of this concept. It is in essence wealth creation through a stroke of the pen."
"Our general misgivings about 'wealth creation' simply through rising house prices has still another reason, however, and that is the way housing values are calculated. The conventional practice in America is to treat the whole existing housing stock as being worth the last trade. This contrasts wondrously with the tedious process of generating prosperity through saving, investment and production."
"Everybody knows the answer, but few want to admit it: Lured by artificially low interest rates and easily available credit, private households have stampeded as never before into the purchase of homes, boosting their prices. Artificially low interest rates and easily available credit are, actually, the key features that specifically qualify an asset bubble."