Despite the appeal of the hypothesis that lower interest rates encourages the private sector to take on debt, the data doesn’t support it. So why are asset prices so high?
A very interesting piece - So essentially Governments facilitate a continuous rise in asset prices in order to serve themselves via serving the electorate. These bull markets in asset prices are torn down by systemic or geopolitical instabilities which create uncertainty, kryptonite for markets. One wonders to what extent the significant changes to the global banking and monetary system (including the shadow non-bank sector) increase the risks of instability due to a reduction in feedback from the banking sector to the central banks caused by the post GFC excess reserves regime and due to the shift from unsecured lending between banks (forcing banks to monitor each others health) to secured only lending between banks and non-banks. eg. LIBOR replaced by SOFR. I wonder if the Governmental sectors are now blind to risks in the banking and non-banking sectors. If this is true? It begs the question - Is the current perceived certainty in fact a mirage - Have the changes made to the monetary system since GFC made the system more or less likely to suffer a bout of sudden unanticipated instability? - China - CRE - A butterfly flapping its wings in Shenzen?
A very interesting piece - So essentially Governments facilitate a continuous rise in asset prices in order to serve themselves via serving the electorate. These bull markets in asset prices are torn down by systemic or geopolitical instabilities which create uncertainty, kryptonite for markets. One wonders to what extent the significant changes to the global banking and monetary system (including the shadow non-bank sector) increase the risks of instability due to a reduction in feedback from the banking sector to the central banks caused by the post GFC excess reserves regime and due to the shift from unsecured lending between banks (forcing banks to monitor each others health) to secured only lending between banks and non-banks. eg. LIBOR replaced by SOFR. I wonder if the Governmental sectors are now blind to risks in the banking and non-banking sectors. If this is true? It begs the question - Is the current perceived certainty in fact a mirage - Have the changes made to the monetary system since GFC made the system more or less likely to suffer a bout of sudden unanticipated instability? - China - CRE - A butterfly flapping its wings in Shenzen?
What a phenomenal read, thank you