It seems that politicians and economists have not learned many lessons from the bursting of the US real estate and credit bubble in 2008, which explains the persistence of quantitative easing that heralds a painful economic meltdown.
In a report published by the American magazine "National Interest", author Desmond Lachman says that at a time when the world is witnessing a rise in prices and a credit bubble bursting larger than the one that the United States experienced during the last crisis, the world's major central banks are still insisting On its loose monetary policies and deals with the situation in a non-serious manner, while deafening silence hangs in academic circles.
The main reason that led to the explosion of the current global bubble - according to the author - is to maintain the policy of zero interest rates and the continued purchase of bonds in an unprecedented manner by the major central banks.
Following the Lehman bankruptcy in September 2008, it took 6 years for Ben Bernanke (former Federal Reserve Chairman) to increase the size of the Federal Reserve's balance sheet by $4 trillion, but in the wake of the coronavirus outbreak, Jerome Powell (current Chairman) took Council) made a similar decision in less than a year.
Over the past year, the European Central Bank has increased the size of its balance sheet from less than $5 trillion before the pandemic to $9.5 trillion.
The global price bubble is a consequence of the unprecedentedly rapid pace of money printing in central banks (Getty Images)
global price bubble
The writer believes that the global price bubble is one of the consequences of the rapid and unprecedented pace of money printing in central banks, for example, that US stock valuations today are more than twice their historical average price.
Another consequence of quantitative easing is housing bubbles around the world.
In the United States, for example, home prices in real terms are now close to 2006, the previous peak of the housing market.
But the most worrying thing - according to the author - is the spread of global credit bubbles as a result of the indulgence in granting loans.
Despite record-high public debt levels in emerging markets and their budgets severely affected in the wake of the pandemic, these countries are still able to borrow large sums at relatively attractive interest rates.
In Italy, the government - despite its debt level rising for the first time in 150 years - is still able to borrow at a lower interest rate than the US government is borrowing.
In light of the flow of cash globally, American and European companies - which do not enjoy a high level of credit quality - were able to continue to borrow at relatively low interest rates.
Change policies before the collapse
The writer believes that the main factor fueling the asset price and credit market bubble is the belief that interest rates will remain at their current low rates for a long time, but that the current policies may leave a severe dilemma for the Federal Reserve.
If the US central bank chooses to raise interest rates and limit its bond-buying policy, it risks exploding the asset price bubble on a global scale, causing a problem for the country and the global financial system, as happened in 2009. If the Federal Reserve does not rein in the monetary easing policy, it risks continuing price inflation. This, in turn, will pave the way for a severe crisis that the Federal Reserve may not be able to stop in time.
The writer concludes his report in the "National Interest" by saying that it is in the interest of the United States that the Federal Reserve begins to tighten its lenient policies urgently to avoid a sharp rise in inflation rates, and to overcome the current crisis with the slightest damage.