'..Instead of inflating consumer prices so as to catch up with inflated asset prices, their reflationary measures are exacerbating price instabilities and inflationary divergences.
..
..Bubble Dynamics. We’ve seen it all before – except never on a such an all-encompassing, multi-asset class and global basis..'<blockquote>'It’s the nature of Credit Bubbles that risk rises exponentially during “Terminal Phase” excess. In simple terms, the quantity of new Credit expands greatly while quality deteriorates rapidly. A hypothetical chart of systemic risk – that had been rising left to right steadily for years - takes a moon shot. A surge in risky mortgage Credit fuels unsustainable real estate inflation, while business borrowings expand rapidly from entities that will struggle with solvency issues as soon as the Bubble falters. The real economy suffers deep maladjustment that remains largely masked so long as rampant Credit growth (and self-reinforcing asset inflation) runs unabated.
Global policymakers have delusions of controlling Bubble Dynamics. Or should I say that the appearance of being able to manage Bubbles creates the complacency necessary for immense, out-of-control Bubble inflations. A dangerous notion took hold that, rather than permitting Bubbles to burst, they will simply be inflated away. Surely part of the underlying angst affecting central bankers (from Washington to Frankfurt to Tokyo to Beijing) these days is the realization that they indeed do not control inflation dynamics. Instead of inflating consumer prices so as to catch up with inflated asset prices, their reflationary measures are exacerbating price instabilities and inflationary divergences.
A key aspect of global Bubble analysis is that inflationary policymaking and resulting monetary disorder have badly distorted economic and financial structures. QE and other monetary inflation were supposed to rectify the dilemma of insufficient “aggregate demand.” Yet all this “money” and Credit sloshing around the global system is creating dangerous market contortions, destabilizing speculation and ubiquitous price Bubbles. China’s financial system is straining under the burden of intermediating $4.0 TN of 2017 Credit growth into perceived “money-like” instruments (that folks are willing to hold).
..
The fact that markets continue to so readily disregard risk is consistent with Bubble Dynamics. We’ve seen it all before – except never on a such an all-encompassing, multi-asset class and global basis. I would argue that bond yields have been held artificially low by a combination of complacent central bankers, mounting geopolitical risks, Trump uncertainties and the general view that equities and risk markets have become increasingly vulnerable. There is at least some indication that global central bankers are becoming a little less complacent.'
- Doug Noland,
Monetary Disorder, September 16, 2017</blockquote>
Context<blockquote>
'..the true “Phillips Curve” .. is actually a scarcity relationship between unemployment and real wages, not general prices.'</blockquote>