Our economists are blowing bubbles again

The economic world news seems rather optimistic nowadays. In the US the Fed thinks the recession is ending.

The Fed is "more worried about unemployment than a resurgence of inflation". I think they are wrong. There are different kinds of inflation and the one we are seeing now is asset inflation. Look at the hause on the stock exchanges and the fact that house prices are starting to rise again in regions where they hadn't bottomed out to historic prices.

That is exactly how the economy was propped up during the last decade. Then too there was too much money that couldn't be invested productively and it ended up in speculation.

In the 1929 economic crisis many believe the problem was too much inequality. Rich people tend to spend a smaller percentage of their income on consumption than poorer people and so you get underconsumption. Throughout the 1930s the economy stumbled along. There seemed to be some recovery after 1933, but when government started to address its deficits in 1937 the economy dived again. In the meantime the inequality stayed essentially the same. World War II lowered the inequality very fast and after that it stayed low for decades - while the economy kept humming.

But addressing inequality is hard. The rich people have most of the power and it looks like only a real war gives them enough sense of community that they see the benefit of sacrificing some of their possessions for the community.