- International debt issuance stalled in 2008 and has never recovered. To cope, central banks and governments created a massive flux of artificial liquidity that led to a feeble economic recovery.
- Asset valuations are not in line with the underlying real economy, which creates a risk for a market crash in the near future.
- Economic forecasts may be seriously biased at the moment.
It is well known that the recovery from the financial crisis of 2007 – 2008 has been nascent all over the world. Several attempted explanations for this slowdown have been provided, including declining aggregate demand, debt-overhang and productivity slowdown.
Our analysis yields a more detailed outcome: The crisis of 2007 – 2008 reversed the trend of financial globalization, which has undermined global growth. The pull-back in financial globalization has been masked by central bank-induced liquidity and continuous stimulus from governments which have created an artificial recovery and pushed different asset valuations to unsustainable levels.
This implies that we live in a “central bankers’ bubble”. This is something we have been warning earlier (see, e.g., Q-review 1/2016). In this report, we will show why the central bankers’ bubble is such a big problem for the global economy.
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