Forever Blowing Bubbles

Who said Quantitative Easing would help to improve the real economy then?

A cursory glance at the main three assets markets for this year in the UK:

Gilts are still at all time highs, see below and ETF Gilt tracker which is a great procy for the combined market. Even this year things re steady at near all time highs. Not surprising with interest rates still at historic lows after 4 years.

 

Then we have the UK FTSE 100 - having a very strong year thus far (now actually I think this is more grounded in reality, its still below highs seen 14 years ago and is really hovering along its long term average)

And finally, House Prices, this chart from Zero Hedge helpfully pointing out a still historic 30% over-valuation...

So there we are 3 huge bubbles in the main asset classes and we have not even got into the Debt side yet. All the while the real economy slowly gathers pace for very modest recovery.

What could possibly go wrong with this picture? My main concern is that we tend to have recessions every 8-10 years. The last one started in 2008, so we are now on the climb to the top of the economic cycle. In 2015 we will likely reach the peak, juiced on stimulus - will this peak even be as high as 2007/8 in terms of overall GDP - probably not.

All the while, we are stealing from the future to pay for today's stimulus.

Bank of England can't see beyond more Quantitative Easing

Yes, that is what the Bank of England is likely to say today: print more money, the Government spending is the only thing keeping the economy alive.

This is an horrendous trap, see FT here, we have fallen into, now that the UK is existing on printed money for its government financing, it will be difficult to see how this can be stopped. The Bank of England may need to keep extending the 'window' and I have no idea where that will lead, but Zimbabwe is the worst option and Japan, with 20 years of sclerotic economic activity, is the other.

Many economists are now openly saying more stimulus is needed, what they are not saying is that the markets are seriously considering another September to November event like last year; that is the fear. Not so much a double dip a as tombstoning.

However, why are no alternatives being put forward by the Opposition? The need for stimulus is quite clear, even to me. Allowing the economy to collapse to make Austrian Economists and goldbugs happy is not the answer.

However, the stimulus could be provided by tax cuts and holidays; OK, VAT did not really work as it was too small and mixed with Christmaes in any event, but there are options on income, property and business taxes.

The net affect in the short term will be to increase public debt as with QE, the difference is the sector being stimulated is the private sector, not the non-producing (in a fiscal sense) public sector.

This is what the Tories should be recommending, they need to look into their own ideology to see solutions and not be blinded by the socialists decrying only the State can save us. The state is bankrupting our futures at a record rate; time to stop it.