Another Asset Bubble Blowing Up

The "Free Lunch" of Endless Rising Debt

Behavioural economics is an interesting branch of the "dismal science".  It focuses upon how individual human beings make decisions about money, finance, assets, wealth, and so forth.  Oftentimes decision making is contrary to common sense--even verging on the irrational.

In New Zealand we are heading into a phase when irrational exuberance has taken over the financial decision making of many households.  It centres upon debt, household debt.  People are borrowing irrational amounts of money to fund house purchases and their lifestyles.  Debt can be like an increasing addiction to any recreational drug.  One gets away with it the first time--that is, one enjoys a reasonably pleasant experience with no long lasting damage.  The next time is easier, less resistance.  Before long, one cannot live without it.  Addiction sets in.  Decision making at that point become irrational.

New Zealand households are increasingly sitting on a mountain of debt.

Grexit

Hard Money, Soft Pledges

"The intractable problem is that many governments do not trust the Greek government to implement a €12bn (£8.6bn) programme of spending cuts and reforms that will be delivered as part of a bailout. Eurozone governments are seeking proof from Athens it can keep its promises, in exchange for agreeing to start talks on a deal.  “The main obstacle to an agreement is trust,” said Pier Carlo Padoan, finance minister of Italy, one of the countries most sympathetic to Greece."  [The Guardian]

Europhiles are between a rock of adamant and a very hard place.  If Greece agrees to the conditions being imposed to keep it in the Eurozone to secure the third grand bailout, only two outcomes are possible.  Either Greece will comply and keep the conditions, or it will not.  If it keeps the conditions, it will face decades of deflation--which is to say that the population will eventually rebel and a revolution will drive Greece out of the Euro, into the arms of whoever else.  Or, it will fail to keep the conditions, proving that the distrust of Greece is well founded--which is to say that more bailouts will be needed.  Fool me once, shame on you.  Fool me twice, shame on me. Fool me three times and I am the fool.  Europe is well on the way to being branded as the village idiot.

Douglas Wilson's Letter From America

And Then, Wham

Money, Love, Desire - Wealth and the Christian
Written by Douglas Wilson
Monday, December 26, 2011

As news comes in that China is starting to teeter, allow me to take a moment to remind everybody that there are two kinds of money. Given that miscreants are often put in charge of economies, the boundary between the two kinds of money is frequently murky, but it is important to note the two kinds of money anyhow.

Wealth is made up of goods and services. One kind of money, the real kind, is a measuring stick for those goods and services. When men are being comparatively honest, paper money can work for a time,