The Wall Street Journal has a good column about the problems with entrusting economic growth to central banks.
Are asset bubbles the only way for central banks to boost demand? Leading economists are starting to wonder. And both the pundits and central bankers are clearly tilting in favor of keeping asset prices frothy if that’s the only way to keep the economy ticking over.
There’s a growing line of thought that central bank stimulus is simply boosting hard asset prices but that the second round effects (mostly investment in productive capacity) continually fail to materialize.
I blame the incoherent policy in Washington but central banks enable Washington insanity by inflating assets. It’s a true conundrum and you have to ask yourself, what happens to the economy when asset prices stop rising?
