The current high levels of stock markets in the USA & UK is certainly reflective of the ever increasing QE which is still adding enormous amounts of money month after month to fuel financial asset price increases.
Though the author is correct to argue that far higher real growth economic activity is required to support these market levels, this will not occur in the West while its costs remain so high compared with elsewhere in the world, where there is ample and growing spare capacity. Many investors are worried that the real drive of the US & UK Governments is inflation to diminish their unsustainable debt and that in reality the current levels of QE will never be paid down as the political carnage would lose many elected representatives their jobs and damage their careers, which simply cannot be allowed to happen.
Economists pursuing ever increasing financial asset prices (Wall Street in the USA; residential property in the UK) to encourage more consumer expenditure (the “Wealth Effect” ) are three or more decades out of date. Back in the post WW2 years with fixed exchange rates and little industrial competition, these moves by Governmments to increase credit in their economy had relatively high local traction in economic activity, but no longer, this is dissipated as the spending drives the Chinese economy rather than the UK’s or the USA’s. This was probably the problem with Greenspan’s models, certainly with Brown’s RPI & CPI targets.
Built into the equity and property markets is an insurance premium against the impact of stagflation as these are the only immediate and straightforward options to most investors. They rely on their Governments to provide the insurance through if the market falls to release more QE ………….. just the "Greenspan put" in another form
Though the author is correct to argue that far higher real growth economic activity is required to support these market levels, this will not occur in the West while its costs remain so high compared with elsewhere in the world, where there is ample and growing spare capacity. Many investors are worried that the real drive of the US & UK Governments is inflation to diminish their unsustainable debt and that in reality the current levels of QE will never be paid down as the political carnage would lose many elected representatives their jobs and damage their careers, which simply cannot be allowed to happen.
Economists pursuing ever increasing financial asset prices (Wall Street in the USA; residential property in the UK) to encourage more consumer expenditure (the “Wealth Effect” ) are three or more decades out of date. Back in the post WW2 years with fixed exchange rates and little industrial competition, these moves by Governmments to increase credit in their economy had relatively high local traction in economic activity, but no longer, this is dissipated as the spending drives the Chinese economy rather than the UK’s or the USA’s. This was probably the problem with Greenspan’s models, certainly with Brown’s RPI & CPI targets.
Built into the equity and property markets is an insurance premium against the impact of stagflation as these are the only immediate and straightforward options to most investors. They rely on their Governments to provide the insurance through if the market falls to release more QE ………….. just the "Greenspan put" in another form
1 comment:
Romanii, neam de iobagi si serbi legati de glia Grofilor unguri , accepta orice - ba mai mult vor "iesi cu flori de bucurie" , cum au iesit la curverle regilor, nemti, rusi, FSN, Basesti, mineri si altii - super popor de slugi !!!!1
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