24
Aug
08

Rising asset prices as a substitute for personal savings

Tyler Cowen’s article: “Finding the Mess Behind the Mess.”

The thinking went something like this: As long as your home’s value rose every year, you didn’t have to set aside so much from your paycheck. If your stocks went up, too, so much the better; don’t forget that the Dow Jones industrial average stood in the 800 range in 1982 and seemed to rise almost nonstop for many years.

Counterproductive measures include: a) further attempts with a fiscal stimulus package–i.e. tax-rebates b) excessive banking regulation–as not to offset the delicate balance of bank lending, savings, and investment. c) Overreaction of past banking mistakes.

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