Inflation should be caused by normal market responses but the government keeps asset prices artificially high, the result could be a disaster.
Inflation should be caused by normal market responses. However, when the government keeps asset prices artificially high, the result is an inevitable rise in assets prices while purchasing power self-destructs. How does this happen ?
When central banks purchase stocks and bonds and turn into investors, interest rates are kept low, and borrowing becomes easier. Money becomes cheap as the central banks keep throwing piles at commercial banks, who then lend it out to consumers. This artificial stimulation of the economy and excess liquidity inflates the value of assets in ways that can’t be sustained without continuously feeding the asset bubble with more money. Eventually, the central banks printing press will need to slow down and stop flooding the market with devalued money. When that happens, the asset bubble is likely to burst, and we could be facing an economy on the verge of a recession.
The US dollar is the most influential currency in the world. Excess US dollars have held up global financial imbalances during times of crisis. If the dollar collapses, so does the global economy. East Asian and Middle Eastern countries are holding massive dollar reserves. If they ever decide to recklessly sell U.S debt, chaos will be the likely result...