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The Typology of Financial Scandals
I. Overview
Also published by United Press International (UPI)
The recent implosion of the global equity markets - from Hong Kong
to New York - engendered yet another round of the semipternal
debate: should central banks contemplate abrupt adjustments in the
prices of assets - such as stocks or real estate - as they do
changes in the consumer price indices? Are asset bubbles indeed
inflationary and their bursting deflationary?
Central bankers counter that it is hard to tell a bubble until it
bursts and that market intervention bring about that which it is
intended to prevent. There is insufficient historical data, they
reprimand errant scholars who insist otherwise. This is
disingenuous. Ponzi and pyramid schemes have been a fixture of
Western civilization at least since the middle Renaissance.
Assets tend to accumulate in "asset stocks". Residences built in the
19th century still serve their purpose today. The quantity of new
assets created at any given period is, inevitably, negligible
compared to the stock of the same class of assets accumulated over
decades and, sometimes, centuries. This is why the prices of assets
are not anchored - they are only loosely connected to their
production costs or even to their replacement value.
Asset bubbles are not the exclusive domain of stock exchanges and
shares.
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