Two Pins Threatening Multiple Asset Bubbles, Part II

“Vulnerabilities associated with elevated risk appetite are rising.” “The combination of stretched valuation with very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event.”

In no uncertain words, Brainard cautions financial stability is at risk. Since her comments, there has been nary a whisper from Fed members on financial stability.

Summary- The View from the Fed

The Fed did not understand the escalating level of financial instability leading to the Great Depression, Dot-Com bust (2000), Financial Crisis (2008), and other more minor financial crises. Do you think they will this time?

Unlike those periods, rising wealth inequality resulting from surging asset prices is making front-page news. The media is picking up on inequality which will undoubtedly lead politicians to act. The Fed may likely be in their sightlines. As discussed in Part One, rising wealth inequality, driven by inflation and/or “financial stability,” are potential needles waiting to pop the Fed-driven asset bubbles.

We end with a quote from Stanley Druckenmiller- “I don’t think there’s been any greater engine of inequality than the Federal Reserve Bank of the United States the last 11 years.”

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