Tuesday, June 12, 2018

COTW: The Central Bank Bubble

We have seen the dot.com bubble and the housing bubble come and go (disastrously) now it is the time of the "central bank bubble" or sometimes called the "everything bubble"  This chart shows what is happening now:
In an effort to keep the economy and the stock market percolating after the the Great Recession, the central bank, aka the private Federal Reserve, has drastically increased its portfolio of assets.  At 4.5 trillion it it comprises 23% of GDP, which is beans compared to the Bank of Japan's 93%.  The pregnant question is, who will bail out the central banks in then next, greater revaluation.  Just ask John Law or Paul Tudor Jones, rock-star hedge fund manager: “You look at prices of stocks, real estate, anything,” we’re going to have to mean revert to a normal real rate of interest with a normal term premium that’s existed for 250 years. We’re going to have to get back to that. We’re going to have to get back to a sustainable fiscal policy and that probably means the price of assets goes down in the very long run.”