[OPE] Bernanke's Bubble Laboratory

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Thu May 22 2008 - 14:28:19 EDT

The concept of a "bubble" means that a type of asset is overvalued, and that after a while the bubble pops, so that the asset is again valued at its real value.  

But personally I think the reference to "bubbles" masks what is really happening - namely, an enormous, permanent expansion of available credit money which creates a durable, structural change in the functioning of the world economy, and in the valuation of assets. Indeed it often becomes difficfult to say what the "real value" of an asset would be - because that value depends completely on its ability to generate income, and that is something which in turn depends a lot on market fluctuations.

If property values increase 150%, 200% or 250% across ten or twenty years, and if subsequently they drop in value by 15% or 25% you can of course say that the bubble has popped, but, in reality, property values remain double or treble what they were a couple of decades ago. 

Essentially, what capitalism is really about these days is, "whether you can extract a revenue stream from an asset, irrespective of whether that asset is owned or borrowed". In the US especially, a very large fraction of fixed equipment used in production is not owned by the producers, but leased - leasing is tax deductible and does not appear as a debt or a liability; the IRS does not regard an operating lease as a purchase, but rather as a tax-deductible overhead expense. Consequently it is often more profitable to rent rather than to buy. Conversely, in rentier capitalism the ownership of an asset is only a collateral for a vastly larger sum of borrowed capital, which is used to extract an income much larger than the cost of borrowing. 

So from the perspective of the theory of rentier capitalism, "bubbles" merely describe forms of unsustainable overcapitalisation, but not the real structure of capital fnance which makes the bubbles possible in the first place.


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