kdo

What Will It Take for Faith in Financial Engineering to Wane?

I think part of the problem is thus. Economic models exist which show clearly that expectations of price increases, can lead to further price increases (inflation) and that can be modified through interest rates, same with deflation, which provide feedback loops. However, the knuckleheads (economists) give way too much credit towards people to price assets and don't understand that asset price behave in the exact same way. So if people become habituated to price increases, they're expectations of price increases start creating a self fulfilling prophecy (ie: I will pay more today because I expect it to be much higher next year), just like the prices of stuff. But what to do? Clearly, it should not be the provence of the government or central bank to declare what prices should be and having a stated policy of "stable asset prices" is wierd and kind of socialist. However, especially when people are taking on too much debt to buy overpriced assets, there is a huge problem brewing that needs intervention.