So, the article says dotcoms caused first bubble in 2000, houses in 2008, but this one is driven by central banks printing money. And there is no way they will stop printing so this is an infinite bubble
There is sooo much wrong with that. As @rtpg says, that s stops not when Fed stops printing money but when market realises that the high asset prices "globally" become obviously unsustainable.
The issue is that when that happens, it happens across the world simultaneously- which is why they article refers to the complacency index. (It is possible the article is more sarcastic than I could read into it)
>As @rtpg says, that stops not when Fed stops printing money but when market realises that the high asset prices "globally" become obviously unsustainable.
I think it's clear to every investor that certain asset classes (eg. equities) are hugely overvalued. The problem is a lack of alternatives. People in pension funds, hedge funds, asset managers, etc. all try to meet their return targets. As long as national banks keep printing money and buy up all the government issued securities that search for yield is going to continue. Either the national banks stop printing money (or rather reduce their QE programs) and the bubble will burst or expectations for deflation rise so high that holding cash becomes a valid alternative. We've seen some hints at that in Switzerland, where corporations are starting to hold huge amounts in cash at their headquarters to avoid negative interest rates. Still, this rise of deflation is exactly what national banks are trying to avoid and as the article pointed out: Don't bet against them. I think they might even come up with some clever new ways to introduce even more cash into the economy.
> So, the article says dotcoms caused first bubble in 2000, houses in 2008, but this one is driven by central banks printing money. And there is no way they will stop printing so this is an infinite bubble
> There is sooo much wrong with that
Well, for one thing, its not true. In the US, for instance, the Fed stopped QE in 2014, and has not only stopped QE but raised interest rate targets slightly since.
Central bank policy -- like the economic indicators that drive it -- tends to be cyclical, not infinite positive feedback. This has been a long and particularly intense period of loose monetary policy (largely, because governments, especially the USG, have completely been asleep at the switch in terms of fiscal policy response to the economic situation, relying more heavily than is sane on central banks and monetary policy), but there is very little to think that the usual cyclical drivers won't work the way they normally do.
(Of course, that won't actually pop asset prices in general -- though it may result in a shift across asset classes -- since the cyclical drivers of tighter monetary policy are exactly the same things that drive high general asset prices without a loose-money driver.)
> As @rtpg says, that s stops not when Fed stops printing money but when market realises that the high asset prices "globally" become obviously unsustainable.
Which, if those prices were high nominal prices driven by the Fed printing money such that the supply of money vs. that of other assets was ever expanding, would actually require the Fed to stop printing money, because as long as it continued to do that (and as long as people believed it would continue to do that), high asset prices would be sustainable.
(Conversely, if people believed that the Fed would stop, but would only do so because of the existence of some other driver supporting asset value, then even with the money-printing-presses stopped asset values would be maintainable.)
Like you, I wonder about the 'sarcasm quotient'. Coming from Ireland, every time I hear someone say "There's no end of this boom in sight ... it's not going to happen this time", I get scared.
To quote Charles Dickens's Pickwick Papers(1837) "Never say never."
I don't think they say it's an infinite bubble, but one that may continue much longer than non central bank driven bubbles.
I guess the hope is that real economy growth starts improving and QE can be tapered and prices auto correct over time, rather than a sudden pop in inflated asset prices and adverse effects to real economy from that.
Where the growth is supposed to come from (within next 5 years) I'm not sure, so the money creation might continue for quite a while.
Yes, definitely technological development. And there is a lot of poorly allocated of capital (non-productive asset bubbles, corruption, ineffiency etc) that could be put to better use. But I don't think that will change much in 5 years
If that were the case (central banks debasing money), you'd see high interest rates. You'd also see inflation in goods, not just high prices in financial assets.
When people talk about central banks "debasing" currency because of QE, they miss one thing: Something in the neighborhood of one trillion dollars evaporated in 2008. That's the kind of thing that can lead to a significant deflationary mess. The central banks actually did a pretty good job of maintaining the value of their currencies, in light of the magnitude of the event.
Why is deflation so bad? Well, dollars are rarer, and therefore worth more. But I still owe the same number of dollars on my house, my car, and my student loans. If my income drops due to the deflation, my debts go from "manageable" to "crushing". So many peoples' spendable income drops, so they buy less. In that circumstance, a bunch of people sell their houses for whatever they can get, and a bunch more walk away. So house prices drop. And so it goes, with economic activity declining, prices falling, money becoming scarcer, and those who are in debt getting destroyed.
> you don't see high interest rates because the banks are undermining the currency by buying their own debt (lowering their interest rates).
True - or at least, it was true. Currently the Fed is not buying additional debt. The amount that they hold might distort the market, but at least they aren't adding any additional distortion to it.
> not sure what the rest of your post is addressing. i'm familiar with deflation.
It's addressing the term "debase". If a trillion dollars evaporated, creating a new trillion dollars isn't debasing the currency, it's restoring the status quo ante.
There is sooo much wrong with that. As @rtpg says, that s stops not when Fed stops printing money but when market realises that the high asset prices "globally" become obviously unsustainable.
The issue is that when that happens, it happens across the world simultaneously- which is why they article refers to the complacency index. (It is possible the article is more sarcastic than I could read into it)