would like readers to consider carefully the fundamental difference between a “real economy” and a “financial economy.” In a real economy, the debt and equity markets as a percentage of GDP are small and are principally designed to channel savings into investments. In a financial economy or “monetary-driven economy,” the capital market is far larger than GDP and channels savings not only into investments, but also continuously into colossal speculative bubbles. This isn’t to say that bubbles don’t occur in the real economy, but they are infrequent and are usually small compared with the size of the economy. So when these bubbles burst, they tend to inflict only limited damage on the economy. In a financial economy, however, investment manias and stock market bubbles are so large that when they burst, considerable economic damage follows. dailyreckoning/real-us-economy-trampled-by-white-elephants/
Posted on: Fri, 08 Nov 2013 10:22:12 +0000