Over the last 25 years we’ve gone from one Fed created bubble to the next. Now the central banks of the world are pushing into new frontiers of money printing and they are likely creating a bubble which will result in an unprecedented bust.
The central banks are moving markets, if not the job markets. Stocks in the US are of course way up. Housing prices are up. Food prices are up, though the ascent has slowed from mid 2011 when things were starting to get dicey. Gas prices though up from the initial crash have settled down for the time being largely because the yen and euro have dropped against the dollar even with all the QE from the Fed. This should give everyone pause. And speaking of Japan, the Nikkei is up 45% from the beginning of the year.
So US stocks are up, Japanese stocks are up, housing prices are up. Good news right?
Unfortunately the thing driving these markets is not organic, real, demand but gobs and gobs and gobs of cheap money. As the central banks continue to keep interest rates at near 0%, the savers of the world are hammered, (Are there any left? They were the core of the middle class. Now they are a vanishing species.) while the big bank money churners dance around as $100 bills rain down from the Fed window.
Are we creating the mother of all bubbles? Probably. But it still has room to expand, which means payback will only be that much more hellish.
And we need to ask ourselves, given what the central bankers have done this time around, what will they do next time they perceive the end of the universe is happening? That’s a scary thought.
The greatest disconnect in the world today is the underlying economies of the world and the markets; all of the markets.This river is wide and getting wider given the money that the central banks are pushing downstream. The flood has reached all of the markets, Real Estate, the banks, many corporations, any and all borrowers with our incredibly low interest rates, but it has had little impact on the Main Streets of the planet. There is, in fact, a bubble of epic proportion.
It is not “irrational exuberance” but a quite rational placement of money that must go somewhere because it is not left in the sock drawer. The creation of money by the Fed, the ECB and Japan’s central bank keeps raising the tide but like all tides when it reverses course if will flow back out from the high water mark which has been created and with an equal force.