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October 14, 2014

Rational exuberance?

Economies may be showing signs of improvement after the 2008 crisis but Better Markets Senior Fellow, Robert Jenkins explains why central bankers are worried that underlying problems have yet to be resolved.
 
God bless the central banker. He’s there when you need him and he’s there when you don’t. He was there in 2008 when the
meltdown commenced. He was there for the euro when a break-up threatened. His timely interventions brought us back
from the brink. His liquidity largesse opened the road to recovery.  Six years on, he is there still – keeping long rates low and short rates lower. It is a policy that props up asset prices and prevents zombie companies from going down. Asset owners rejoice. Simple savers suffer. Negative real interest rates send capital scrambling for a little more yield today in exchange for a lot more risk tomorrow. Soon the flows take on a life of their own. Hey, why not lever up and hop on the bandwagon? After all, the central banks have their foot on the pedal and are unlikely to ease off soon. Prudence doesn’t pay – at least for the foreseeable future. Haven’t we been here before? Or is this particular exuberance rational?
 
Jenkins’ entire column, which was first published in Financial World, is attached here as a PDF
 
 
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