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Just as with product prices, rapid increases in asset prices can distort the allocation of resources.
The 2008 crisis represented the first recognition that those increases in asset prices and economic growth were chimerical.
The Fed has finally succeeded in getting growth going, but it most likely has only managed this by creating dangerous and unsustainable increases in asset prices.
Zucman argues one reason for this is that taxes on increases in asset values are only paid when the asset is sold, and even then, they are taxed at lower rates than ordinary income from earnings.
And rightly so: real interest rates are already negative and the bank has raised the alarm about the recent rapid pace of growth in credit which could lead to unsustainable increases in asset prices, particularly in house prices.
That will have to change.A third lesson is that central banks should sometimes tighten monetary policy in response to sharp increases in asset prices even if inflation is low.
Similar(46)
As the number of banks increases, growth in assets is expected to follow.
This meant that the increases in assets were "sterilized," i.e., they didn't represent an increase in the money supply.
But even in this instance, the vast increase in asset values cheap money brings has helped make richer and invariably older homeowners and shareholders richer still.
Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history (see article).
In fact, with such a small annual increase in asset purchases, it is unlikely Japan will achieve 2 percent inflation, analysts said.
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