Central banks around the world have colluded, if not conspired, to elevate and prop up financial asset prices. Here we’ll present the data and evidence that they’ve not only done so, but gone too far.
When wee discuss elevated financial asset prices we really are talking about everything.
we’re talking not just about the sky-high prices of stocks and bonds, but also of the trillions of dollars’ worth of derivatives that are linked to them, as well as real estate in dozens of countries and locations. All are intricately linked together. For instance, stocks are elevated, in part, because bond yields are so low. Sam for real estate.
Here are three questions most alert investors are asking:
- Question #1: When will financial assets ever ‘correct’ and fall in price?
- Question #2: How much does overt propping by the central banks have to do with today’s elevated prices?
- Question #3: How much does covert propping by central banks play a role in these inflated markets?
These are important questions to consider because if central banks have been too involved and gotten themselves mixed up in trying to ‘wag the dog’ by using elevated financial asset prices as a means to drive economic expansion — then the risk is a big implosion in financial asset prices if their efforts fail.
The difficulty, as always, is that you can’t print your way to prosperity. It’s never worked in history and it won’t work this time either. You can, however, print (or borrow) to delay a correction, after which a boost in real economic growth (or additional income) had better materialize to save your bacon. But if enough growth does not emerge to both pay back all the old outstanding loans plus all the newly created debt and currency, then you’re going to experience a worse correction than if you had not tried to print/borrow your way to prosperity.
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