Tuesday, October 18, 2011

The 'Third Way' Bubbles Are Bursting

This article spells it out like I've always said it, capitalism hasn't failed...

The 'Third Way' Bubbles Are Bursting

In his article, Robert Trasinski concludes:

I'm beginning to suspect that the credit "bubble" is one of the hallmarks of such a system. It reflects the hybrid nature of the system. It is a system that still has property rights, private savings, financial markets, and ambitious individuals exuberantly reacting to price signals in a frenzy of activity. But behind that is the "management" of government, which serves to distort those price signals and misdirect trillions of dollars of private economic activity. The government decides that housing, for example, or "green energy" is an industry to be supported with cheap credit, loan guarantees, and subsidies, making it seem artificially profitable and leading investors to pour more money into these activities than the economy can actually support over the long run.

Or European governments decide that Greece should be allowed, through the mechanism of the Eurozone, to issue its debt at the same low interest rates as Germany. And then they decide, when the financial crisis hits in 2008, that European banks should increase their reserves by loading up on the "safe" debt of European governments. Or in China, the corrupt incentives driving government officials--who don't need to fear the scrutiny of a free press or the accountability of free elections--encourages unsustainable borrowing and out-of-control real-estate speculation. All of these bubbles are bursting or are about to be burst.

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