A global asset price bubble in a weak global economy

On September 21, Alex J. Pollock welcomed on behalf of the American Enterprise Institute,Tobias Adrian, Jeffrey Frankel, Desmond Lachman, and William White for a follow-up conversation to their April discussion on the developing disconnect between asset prices and economic fundamentals.  White described the undesirable consequences of past monetary policy by outlining the trend of falling interest rates, accumulating debt, and declining debt quality. He suggested that policy makers have made two grave errors. They did not  appreciate the risks of debt accumulation, financial market distortions and resource misallocations stimulated by repeated cycles of monetary easing. Moreover, they had eased monetary policy inappropriately in the face of positive supply side shocks, largely in the years leading up to the Great Financial Crisis.  We are now in a “debt trap”, worsened by the pandemic,  from which it will be hard to escape.

Links to the conversation and White’s background notes are found below.