There is a small X% chance of the USD failing catastrophically. So assets that are backed by cash flows in any denomination have a premium of (? something huge ?) * X%.
A lot of people got burned by staying ‘safe’ after the 2008 crash. The 2005-2007 bubble was caused by derivatives expansion up to $2 Quadrillion, without much money supply growth. It was easy to pop that bubble because of razor-thin excess reserves, so small losses leveraged into bank failure of Bear Stearns. There’s nothing like that today. Valuations feel stupid-high, but reserves are at record high, indicating there’s a lot more air to go into the bubble.
In USD terms, the fed has absolute power over pumping and popping bubbles.
But if you denominate assets relative to each other, or relative to something you actually need or want, like housing, they have zero power, except to denominate tax gains in an arbitrary basis.
There is a small X% chance of the USD failing catastrophically. So assets that are backed by cash flows in any denomination have a premium of (? something huge ?) * X%.
A lot of people got burned by staying ‘safe’ after the 2008 crash. The 2005-2007 bubble was caused by derivatives expansion up to $2 Quadrillion, without much money supply growth. It was easy to pop that bubble because of razor-thin excess reserves, so small losses leveraged into bank failure of Bear Stearns. There’s nothing like that today. Valuations feel stupid-high, but reserves are at record high, indicating there’s a lot more air to go into the bubble.
In USD terms, the fed has absolute power over pumping and popping bubbles.
But if you denominate assets relative to each other, or relative to something you actually need or want, like housing, they have zero power, except to denominate tax gains in an arbitrary basis.