Wednesday, May 08, 2013

Stock market bubble fueled by printed money

So the Dow Jones has hit 15,000, it was 14,000 just over two months ago, with the S & P reaching a record level, the FTSE is at its highest since 2007, and the German DAX index reaching levels not seen since before the global financial crisis.

It is like the crisis didn't happen, but oddly enough there isn't a huge amount of evidence to demonstrate that this is due to performance, rather than cheap credit.

Yes there has been a bit of a recovery, and yes some stock prices were low compared to expected revenues.

"Ultra-loose and interventionist monetary policy globally is one of the main causes of this resurgence. Pretending that it isn’t, and that economies – even those like America’s which have liquidated many past malinvestments – could immediately and easily readjust to neutral interest rates and zero intervention is a dangerous delusion.

Much of the central-bank induced madness that led to the last two bubbles is reaching ever more dangerous proportions, not least the Fed’s hubristic determination to prop up markets..."

It was the perpetual issuing of fiat money by central banks that fueled the crisis, with CPI inflation hidden by a combination of plummeting prices from Chinese imports (a scenario that has come to an end, as China no longer offers lower costs) and the inflation being largely seen in stock and property prices.

The new bubbles will be stores of future problems. 

Increases in stock prices due to good performance and optimistic earnings based on improved productivity and market growth are one thing,  increases due to banks, flooded with cheap money from central banks, seeking somewhere to put it, are another.

No one has learned anything.


Anonymous said...

The underlying problem - in the US, but much more so in UK/Aus, and of course critical in Europe - is welfarism.

the monetary policies are primarily to ensure the governments can continue to pay welfare.

the only way all this can finally be unwound is to end welfare - and this will happen, welfare will end as one by one the remaining "Welfare Western" countries follow Greece and Cyprus down the gurgler.

NZ could restore it's economic performance tomorrow, simply by ending welfare and the concomitant labour market, union protection, and restive financial laws.

Libertyscott said...

It's wider than that. The monetary looseness is considered to be a shortcut to boosting economic growth, instead of raising productivity.

The far less welfarist Asian economies pursue the same, and it's notable that no country has a commodity based currency. That's because governments are hooked on the power to try to commence an instant kickstart during a downturn, and because they fear having to offset relative currency appreciation with improving productivity.

Andrew B said...

"The West is financially bankrupt because it is morally bankrupt." -- Yaron Brook

Ed said...

Hey you too, The Fountainhead steered my life most!
I have been trying to unfool the people
Definitely need help, talking to myself is long old.
Money aside, I am certain that it is a far, far better thing for our nation if the people have their heads OUT of their fuming darknesses.
(Obvious in 1-person/1-vote.)

Ed said...

I left a Comment here about 2-3 days ago, incl. noting "The Fountainhead" and this:

No sign of it now! PLEASE, did it just not pass moderation, or might it have gotten lost? Thank you ...

Libertyscott said...

Ed, sorry, have big family health issues and massive work backlog right now. This blog has been down the pecking order of priorities.

Ed said...

Libertyscott, Thank you for reply. Best family wishes to you all. I will watch here for more from you, later on.