The last decade has seen global monetary policy create a situation where cash is very cheap (i.e. many central banks are now offering close to zero interest rates and some have actually seen negative interest rates).
That cheap cash then finds it's way into assets like stocks and housing with that cheap money putting upward pressure on those assets.
In that same climate we have seen a decade long stagnation in wages, next to zero inflation and we are now entering a stagnated and slowing global economy.
With those contradictory growth signals, the real question is how long will that cheap keep flowing, as it is the only stopping those artificial asset bubbles from popping.
Well, once you go to low interest rates, you're effectively stuck with them.
See Japan. Low interest rates make it easy to take on more national debt, so you do. If Japan's bond yields would rise even to 2% (a still ridiculously low yield) then 100% of their tax revenue would go to debt service. They'd have nothing left to spend on actually running the government.
"Stubborn" Germany refusing to take on ludicrous levels of debt they don't need to "grow Europe out of their troubles" is the only thing keeping Europe out of this situation.
Our trillion+ yearly deficits can't go on much longer until we end up in a similar situation.
It's not like the central banks can just realize their mistakes and get out of low interest rates.
As a side note -- I'm very interested in how Japanese banks have survived this. US banks usually make more money the higher the interest rate is. European banks have REALLY struggled in the low interest environment, and US banks were looking pretty bad even when interest rates were only at 1%. Does anyone know how the Japanese banks are surviving?
Add to that the global "QE" programs which are driving up equities even higher. This whole system seems to act synergistically now, perpetually driving stocks higher and higher. Will it collapse altogether (and when)? Who knows
When investors want or need their capital back. Lending is so cheap right now that it probably makes mores sense to keep borrowing rather than liquidate a poor investment at a loss. So I think the equities bubble is going to continue until the lending well runs dry (which could be decades).
That cheap cash then finds it's way into assets like stocks and housing with that cheap money putting upward pressure on those assets.
In that same climate we have seen a decade long stagnation in wages, next to zero inflation and we are now entering a stagnated and slowing global economy.
With those contradictory growth signals, the real question is how long will that cheap keep flowing, as it is the only stopping those artificial asset bubbles from popping.