Central Banks Double Down on the Mistakes of 2008… Creating the Greatest Bubble in Financial History

by Phoenix Capital

The consensus in the financial community today is that the Fed and other central banks have somehow managed to end the business cycle. The result is that we’ve entered a period of sustained (low) growth that will continue until something magical happens and stronger growth returns.

Central Banks Double Down on the Mistakes of 2008… Creating the Greatest Bubble in Financial History

Central Bank and US dollar

Fifteen years ago, the financial world believed that Alan Greenspan was an economic genius who had brought the world to an era of the New Economy in which we saw non-stop productivity gains.

Not content to have created the largest stock bubble in financial history, Greenspan doubled down on his foolishness by creating a housing bubble that was three standard deviations away from historic norms.

He handed off the mess to Ben Bernanke, who handed it off to Janet Yellen. She, like her predecessors, has zero real world experience in the private sector. Now she sits atop the largest asset bubble in financial history: $60 trillion.

This is more than five times the size of the US housing bubble. Moreover, this bubble is global in nature, with 30% of global bond yields in negative territory thanks to central bank meddling.

Because sovereign bonds are the supposed risk-free rate against which all other asset classes are priced, when sovereign bonds are in a bubble, everything is in a bubble: corporate bonds, muni bonds, etc.

The bond bubble is now $199 trillion. It is over twice the size of global GDP. Because the Fed never cracked down on the derivatives markets, there is now $555 trillion in derivatives trading based on bond yields.

This is the greatest bubble in history: seven times global GDP and backstopped by nothing more than monetary printing presses run by an Alan Greenspan equivalent in every major economy.

We know how this ends. We’ve been through it twice in the last 16 years alone. And the stock market is already making clear where this is eventually headed.


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