Central bank distorting and inflating asset prices


CONTRA CORNER

Central Bank “Wealth Effects” Doctrine At Work: Meet The $550K “Crap Shack” In Culver City CA

central bank

The purpose of central bank financial repression and ZIRP is to distort and inflate asset prices. Our monetary politburo even admits that it is in the monetary scam business via its self-serving doctrine called “wealth effects”.

The game here is to drive the stock market averages ever higher through massive liquidity injections into the Wall Street dealer markets. This purportedly causes people to feel richer and to spend and invest more, creating a virtuous circle of prosperity, world without end.

We know by now, however, that “wealth effects” money printing does not help the main street economy. And while it does produce awesome financial market gains—–these turn out to be unsustainable bubbles that inexorably crash. Since the turn of the century, most central banks have participated in this scam—either because they have embraced the Keynesian gospel or have joined the money printing party out of defensive necessity to protect against inflation of their own exchange rates. So the resulting financial bubbles have been global in scope.

During the last global boom cycle, central banks led by the Fed and the US housing bubble drove the aggregate capitalization of world stock markets from $30 trillion to $60 trillion in less than 48 months. Needless to say, the world’s sustainable wealth did not grow by even a fraction of that amount during this brief interval between 2004 and 2008.

Indeed, in much of Europe and the US real wealth was being destroyed by vast malinvestments in housing, real estate and public infrastructure; and in EM economies like China’s, similar wealth destruction was manifested in monumental, uneconomic investments in resource extraction and industrial production and transportation. Nevertheless, this central bank fueled financial bubble reached a tipping point in 2008, and then plunged violently.

…Stated differently, the world’s central banks have not created $35 trillion of new wealth since 2004.  But they have fueled the rise of “crap shack” valuations nearly everywhere on the planet.

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