Re: how does economics explain stagflation?


"Tahir" <highflite1977@xxxxxxxxx> wrote in message
news:cf312d2b.0504211006.496be1f8@xxxxxxxxxxxxxxxxxxxxx
> Rising prices and falling demand can occur as they did in the 70s due
> to trade unions raising the real wage while at the same time demand is
> falling due to many different factors such as firms not investing
> (thus not creating value and stimulating demand to buy their products)
> or a collapse of an export market. I would disagree that land
> inflation and also house prices and other assets cause stagflation.
> Japan has felt many years of sluggish growth due to a collapse of
> asset markets and indeed it is a collapse of asset prices that can
> severely dent demand thus causing stagflation (assuming unions are in
> the meantime demanding higher wages).

are there any links on the interrelation of asset markets and the economy?

from a layman's view, if asset markets go ballistic, there are two ways
out - either everything else becomes expensive to catch up, or the asset
markets decline to bring them back to mean. in relative terms the prices are
coming back into balance. the only difference in the two is whether the
money beceomes worth more or less.

the particular path taken seems to depend on the culture, government
honesty, past experiences with hyperinflation etc.

but in the current fiat money system where interest rates are set
politically, the overvaluation and speculation of land, and eventual
problems caused by excessive debt (with the land as collateral) seem
unavoidable.

what is worse is that mortgage loans are assigned half the risk as other
loans. this means the economy will be saturated with real estate debt, which
has happened.


.

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