It's Not Just The U.S., Finance Has Coopted The Entire World

Andy Xie

Caijing: Second, money supplies worldwide are rising much faster than nominal GDP growth rates. That is, monetary growth is being used to support leverage, mostly in the financial sector. Of course, the reason is central banks have responded to the financial crisis by cutting interest rates and sometimes force-feeding banks with liquidity in hopes more lending will boost the economy. But instead, money has flowed into and led to buoyancy in asset markets (stocks and bonds in developed economies, and almost everything in emerging economies).

Buoyant asset prices have stabilised the global economy. Most analysts say buoyant asset markets reflect correct expectations of a buoyant global economy. I don’t think this is true. As we saw in the past decade, the latest asset market boom is supporting the economy, not the other way around. In other words, it’s a bubble.

Even though the global economy is staging a modest recovery, mainly on inventory restocking and fiscal stimuli, the overall economic situation is still difficult. Unemployment rates in OECD countries are at record highs. Global trade is still at one-fifth its peak level. The small- and medium-sized economies that employ most of the world’s people are struggling. We see a contrast – unprecedented in modern times — between the asset market boom and real economic difficulties.

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