So perhaps a more worrying thought than wrongly using monetary policy is fund managers irrational exuberance — knowing what they’re buying is overvalued and continuing to do it anyway.
The RBA can talk about business activity all it wants. Yet, at the end of the day, it all comes down to how Australian households would cope with a rate increase. One that banks would almost certainly pass on to mortgagees. In effect, the RBA has told us what to expect.
The new ‘Brady’ amendment to the GOP tax plan calls for $2 trillion in tax cuts to corporations and ‘pass-through’ owners. That money will have to be made up somewhere. But where?
As you can see, lifting interest rates just because you want them to be ‘normal’ can set off a chain reaction of damage. It’s why the RBA has been so cautious when it comes to lifting interest rates in the past.
How the ASX reacts from here will be interesting to watch. Low interest rates for the foreseeable future could mean more investors flooding into the market, hoping to seek out returns.
This two-tiered financial system does nothing more than prevent normal people from growing their wealth. It’s skewed towards protecting the big earners, while ensuring the taxpaying masses continue to plod along and pay their ‘fair share’.
The actions taken by the Fed after the dotcom bust and the GFC would’ve, in 1999, been deemed to be sheer recklessness…bordering on lunacy. That’s how much the world has changed in the space of two decades. Goldilocks is going to be mauled by another bear…and it’ll be far more ferocious than the one that awoke from hibernation in 2000.
In following the money, we find the wealth created in recent years has been nothing more than an illusion. This illusion can only be maintained if ever more money is printed…making the world’s newest and largest economy for the privileged few even bigger.
Have you read any mainstream commentary identifying our world record household debt as the root cause of our economic miracle? I haven’t. Instead we’re dazzled with the brilliance of ‘adept management’ and ‘flexible inflation targets’.
The plan in Japan, as elsewhere, was the same old formula: create fake money…lend it at super-low rates…drive up inflation…and incite the public to spend and invest. The whole idea is preposterous.
Before stepping down as China’s central bank governor, Zhou Xiaochuan made a clear warning to the current political party. He told them to cut corporate lending, or face their ‘Minsky moment’.
Unfortunately, most people are oblivious to the dangers that lie in wait. When the market eventually asks why valuations are so high when economic activity is so lacklustre, millions of people are going to be woken from their slumber.
We’ve already seen it all play out in the US. Leading up to 2007, asset prices were soaring, encouraging borrowers to borrow more and lenders to lend more. But as we all found out, borrowing to buy six houses when you can only afford one eventually leads to disaster.
I’ve taken the helm at Markets & Money this week to give you the background on a big step-change in the blockchain space. A pivotal moment where the bitcoin boom bleeds out into everything else. And it’s a moment that’s going to occur on a specific date in November…
Why did voters and investors turn their lonely eyes to a reality TV star…and put their trust and faith in a bombastic huckster, rather than a more conventional scallywag? In short, the fix was in…and Mr Market knew it.