The Fed is engaged in an unbounded money-printing campaign at a rate of $85 billion per month, but they aren’t the only money-printing bank in town. The European Central Bank has agreed to print an unlimited amount of money to buy any and all bonds from whichever euro-area country needs a bailout. The United Kingdom doesn’t have a money printing campaign underway today, but it is on the verge of announcing one. And then there is the Bank of Japan, which recently doubled its inflation target and doubled the amount of money it is printing each month.
The consensus among the world’s largest developed economies seems to be that printing money and debauching the currency is the path to prosperity. I have written regularly on this site and in Young Research’s Global Investment Strategy about the perils of continued central bank money printing. You may recall: manipulation mispricing, misallocation and lasting structural damage.
Bubble Number 3
Misallocation and mispricing are at the forefront of our concerns at Young Research today. The Fed is engaged in its largest effort yet to inflate the stock market, even though stock prices are far from cheap. Young Research’s price-to-trend earnings chart shows that with the exception of a brief period in 2011, stocks have only been more expensive during the dot-com and real estate bubble periods. If Mr. Bernanke’s QE-unlimited is as successful at inflating stock prices as QE1 and QE2, we may see the third Fed-engineered asset bubble in less than 15 years.