> Once understood, it is self-evident that banks are wholly responsible for asset bubbles. Banks, especially large banks, create loans mostly for existing asset purchases, and not for new productive investment. Of course, they do this in part because those assets work as collateral.
This is probably the best part of what you wrote. Loans are typically given to help purchase a finite resource, helping increase demand for limited supply, having the overall effect of inflation.
The person who gets screwed is the person who saved their money. Now, when they withdraw it to buy an asset, it costs more, because the bank allowed somebody else to buy it.
An IRL example I see is tonnes of young people driving around in brand new cars on finance. Not a single one of them can afford the car they apparently own. Now I, as somebody who saved to buy their car, will need to pay more because the bank increased the demand for these cars so much.
The problem really occurs when high numbers of people start defaulting on these loans, and the things they purchased were highly inflated at the time of purchase. Even if the bank goes to collect the asset, they will find it's not worth what was originally paid, but they are still missing a large amount of money not originally factored into their risk.
Needless to say, 2023/2024 is about to get really bad.
> The person who gets screwed is the person who saved their money. Now, when they withdraw it to buy an asset, it costs more, because the bank allowed somebody else to buy it.
I don’t know needs to hear this, but I should remind everyone that putting your long-term savings in cash is, and always has been, a guaranteed way to lose to inflation. Long-term savers should be using a mix of bonds, CDs, stocks, and money market accounts depending on time horizons and risk tolerance.
This is probably the best part of what you wrote. Loans are typically given to help purchase a finite resource, helping increase demand for limited supply, having the overall effect of inflation.
The person who gets screwed is the person who saved their money. Now, when they withdraw it to buy an asset, it costs more, because the bank allowed somebody else to buy it.
An IRL example I see is tonnes of young people driving around in brand new cars on finance. Not a single one of them can afford the car they apparently own. Now I, as somebody who saved to buy their car, will need to pay more because the bank increased the demand for these cars so much.
The problem really occurs when high numbers of people start defaulting on these loans, and the things they purchased were highly inflated at the time of purchase. Even if the bank goes to collect the asset, they will find it's not worth what was originally paid, but they are still missing a large amount of money not originally factored into their risk.
Needless to say, 2023/2024 is about to get really bad.