To: TH who wrote (85034 ) 2/5/2013 10:09:51 AM From: ggersh Read Replies (2) | Respond to This leads to anything's possible....-nfg-2 – Fundamentals vs. Policy – also known as "the gap between the real economy and financial markets high on the synthetic intoxicants coming out of central bank laboratories?: I have written before about the grotesque – in my view – and persistent misallocation of capital (in financial markets) being caused by the mispricing of capital/money by central banks; by their ongoing "promises? to misbehave – seemingly forever – such that anyone with good common sense will eventually be battered and beaten into submission and be forced into the misallocation game; and by the – again, in my view – irresponsible behaviour of fiscal policymakers too. Collectively, we have a huge global game of kicking the can down the road driven by excessive and wasteful government largesse, funded by explosive growth in central bank balance sheets. Future generations will and indeed already are beginning to pay (chronic youth unemployment in the Western world is the current channel) for what I see as deeply depressing policy settings and failed policymaker thinking, which persists with the idea that some form of debt-fuelled asset price elevation will lead to real wealth creation, which in turn will fix all our ills. The "movie? has been run before – too many times – and failed. Mispricing capital and forcing indebtedness into the system is an artificial booster of asset prices – in other words, such policy settings create asset price bubbles that always burst badly . NASDAQ 5000 was one recent example. And of course the huge bubbles that burst in 2007/2008 are another. Real wealth can only be created by innovation and hard work in the private sector, with policymakers, the financial sector and financial markets there to aid and encourage/incentivise We simply cannot turn wine into water – after all, if it were that easy, why have we not done this before (with any lasting success, as opposed to abject failure, for which there is plenty of evidence)! Sure, central bankers through QE can create a chemical/synthetic concoction that may well get us even more intoxicated than real wine, but like most chemical processes that are focused on by-passing the rules and focused on immediate quick fixes, the "wine? they are synthetically creating will I fear ultimately lead to either a large market hangover (at best) or – at worst – to the "market equivalent? of serious liver poisoning or something even worse. The scale of the fallout will I feel be determined largely by how far markets and policymakers are willing and/or able to stretch the elastic band between real world reality and liquidity fed asset markets. Past experience shows us that this band can be stretched a long way, and we know that central bankers have a bad track record at both spotting and managing asset bubbles.
