The Logic of Finance

Diffusion

From http://online.barrons.com/articl ... 11132039434008.html (May require subscription)

PRICE-FIXING IS THE third-greatest refuge of scoundrel governments, right behind inflation and outright default. [...]

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When profligate countries borrow too much, they inflate to stay afloat. When inflation pushes prices up, they maintain their citizens' purchasing power by controlling prices. When they control prices, they invite shortages, black markets and boycotts, and they need capital controls to prevent wise money from fleeing the country. Eventually they need inflows of intentionally dumb money from international donors.

This economic wheel can turn again and again until it breaks under the strain, producing default—either outright repudiation of debts, or default covered by a gooey coating of indefinite postponement.

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