In the face of US fiscal problems, former Fed chief Alan Greenspan says in the following video interview that only the stock market is truly important.
[3:40] data shows that not only are stock markets a leading indicator of economic activity, they are a major cause of it – the statistics indicate that 6% of the change in GDP results from changes in market values of stocks and homes.
This is just an example of experts who resort to statistics to misleadingly associate asset inflation with economic growth: a post hoc fallacy. This has been anchored on the so-called Wealth Effect myth which sees consumption as drivers of the economy.
As I previously explained real economic growth is about the acquisition of real savings or capital accumulation from production.
And that the real concealed reason for the promotion of the wealth effect has been to justify government intervention.
But of course the principal reason behind the populist consumption economy narrative has been to justify myriad government interventions via ‘demand management’ measures applied against the supposed insufficient “aggregate demand” from so-called “market failures”.Moreover, the consumption story aims to buttress mostly indiscriminate debt acquisition as a means of attaining statistical rather than real growth based on value creation.
The central banks' serial blowing of asset bubbles is really an illusion that eventually will implode, thus the bubble cycles.
Also a major reason for such undertaking has been to subsidize the crony banking system, who serves as agents for central banks and as financiers of the political class at the expense of the economy.
Nonetheless, inflating asset bubbles has become the de facto central banking standard adapted by the world monetary authorities, that has been articulated by Mr. Greenspan’s successor, the incumbent Ben Bernanke, as a “smart way” of protecting the economy.