Skip to main content

Asset Prices vs GDP - Zerohedge

But trouble begins when the system gets seriously out of whack. People begin to question why their money has any value at all if the central banks can just print up as much as they want. Any time they want. And hand it out for free in unlimited quantities to the banks. Who have their own mechanism (i.e., fractional reserve banking) for creating even more money out of thin air.
Pretty slick, right?  Convince everyone that something you literally make in unlimited quantities out of thin air has value. So much so that, if you lack it, you end up living under a bridge, starving. 
Let's express this visually.
“GDP” is a measure of the amount of goods and services available and financial asset prices represent the claims (it's not a very accurate measure of real wealth, but it's the best one we’ve got, so we’ll use it). Look at how divergent asset prices get from GDP as bubbles develop:
Asset Prices vs GDP chart
Source: You're Just Not Prepared For What's Coming

Comments

Popular posts from this blog

How The Economic Machine Works by Ray Dalio - Bridgewater

Source: How The Economic Machine Works by Ray Dalio

Letter: Why the geopolitics of international currency choice matters - FT

This coincidence must alert readers that a tempest is brewing on subjects noted: lurking inflation, increasing debt, suppressed interest rates and the shifting of hegemonic power.  There are only two important questions in investing that also apply to subjects impacting the future stability of the world — tell me why and tell me when.  Plender gives us the “why”, the ever-increasing “intolerable burden” of government debt and suppressed rates leveraging the global financial system. He gives us the tipping point.  What we await is “the when”, as in when do we know we have “tipped”.  Paul Hackett Madison,  NJ, US    Letter: Why the geopolitics of international currency choice matters

Enough cool heads are pulling back from the brink - John Authers - Bloomberg

  Beyond the duration of the shock, we also need to monitor the impact on central banks and on the macroeconomy. Societe Generale’s Manish Kabra lays out the criteria as follows: An exogenous shock lasts beyond a week, but oil spikes usually peak in three months. That’s the timeline and only two things matter: 1) shock duration and 2) the Fed’s reaction function. Alternatively, Henry Allen of Deutsche Bank suggests that for a risk-off bear market to follow an oil shock, three conditions need to be met: 1. Large and sustained oil price spike: An oil price spike of at least +50-100% that is sustained over several months. 2. Hawkish policy response: The shock forces a sharp, hawkish pivot from central banks to fight the resulting inflation (e.g. 1979, 2022). 3. Broader macro damage: The shock is big enough to tip an already-slowing economy into recession.   Iran Oil Panic: Enough Cool Heads Are Pulling Back From the Brink - Bloomberg