Wolfstreet claims that

It’s true that despite QE globally – not just in Japan – there has been relatively little consumer price inflation in the countries whose central banks perpetrated it. But it has caused enormous asset-price inflation. We call it the “Everything Bubble” where practically all asset classes globally have become ludicrously inflated.

Is this correct? I'm having doubts because what is a bubble is usually hard to define. How is this "everything bubble" different from just growth that QE is supposed to stimulate?


3 Answers 3


It’s an editorial opinion, and it’s hard to give it a technical meaning.

The distinction being made in the text is between growth in the “real economy” - which would be measured by GDP and/or consumer price inflation - and growth in asset values. For example, there could be no direct job creation because of QE, just equity prices going up.

However, this is an opinion/claim that is hard to evaluate. One argument is that QE would first lower term interest rates (by reducing the stock of debt outstanding and/or signalling that the policy rate would be lower for longer), and this should raise other asset values by decreasing discount rates. (Please note that how QE affected interest rates was the subject of some theoretical controversy; I believe that other questions here discuss this. I am summarising one standard interpretation.)

The idea is that there is a link between rising asset prices and economic activity (known as the wealth effect). Since we do not know how many jobs would have been created in the absence of QE, we cannot be sure how large this effect is.


A 2016 Phil Fed paper does mention toward the end that

a policy of prolonged monetary accommodation has increased risk-taking behavior among investors. With yields on long-term assets very low, investors may allot a greater share of their portfolios to riskier assets, such as stocks or high-yield corporate “junk” bonds. Such “reaching for yield” leaves investors’ portfolios more sensitive to interest rate changes and market volatility.

So possibly there's a behavioral component there to worry about. But this is probably explaining only a small part of the "everything bubble". I suspect even this component may be hard to quantify. But this seems to predict a "biased bubble" toward the riskier assets, rather than everything.

And a paper that I've just discovered has as abstract:

Expansionary monetary policy is necessary to respond to financial crises. However, if Central Bank asset purchase initiatives are too large or last too long, they can lead to explosive increases in asset prices which add to the risk of a future crisis. This article employs two models including the Campbell–Shiller and Generalized Supremum Augmented Dickey Fuller techniques to search for bubbles in the US equity, housing and bond markets over the past eight years. Although, we find that prices in equities and housing have risen following Federal Reserve intervention, there is little indication of asset price bubbles. There is evidence of explosive bond price increases from September of 2011 to February of 2013.

So it looks like excessive QA could do that (in theory), but there's little evidence that (as implemented by the Fed) it did any.


While it is difficult or impossible to prove that QE has created the Everything Bubble, look at it the other way around. Don’t look at the consequences, but look at what’s changed in the financial world.

Rates are near zero in the rest of the world. US has raised rates a little since crisis and considers stopping or even lowering.

Investors have heavily invested into real estate since crisis. Europe which has negative or near zero rates has rapid increases of property prices.

A larger proportion of the general population is investing into stocks, and convinced it’s the right thing to do. Stocks have been only going up since crisis (at least in US). The general public is fed the lesson that the share market is the place to invest and put your money if you want any return for the future.

This has fed social investing apps like BUX, Robinhood, eToro etc. Investing in general helped by Internet 3.0 has exploded. Margin Trading is en vogue.

This scenario shares some similarity to the financial crisis from the 1920‘s. Back then the officials even were promising a golden age of wealth through shares. People were borrowing money to buy shares posting the shares in return as collateral.

More specifically QE directly increases money supply, thereby devaluing the USD. The route taken by Europe was different — lower rates and debt buyback and pushing rates lower on long terms. Devaluing the USD and increasing money supply had to have created some kind of asset inflation. That’s just simply economics. Now why it is not noticeable in common inflation numbers is not known and open to debate. Some argue that the way the CPI figures for instance are calculated is skewed and not calculated correctly to represent inflation. Also CPI is only one subset of everything. It’s a fact that real estate is getting too expensive for the regular workers, people are getting priced out of the market, and rents are rising too fast compared to wages. There is inflation there for sure!


Yes. It is very likely this is the Everything Bubble. In which way this will burst and what will be the trigger — no one is able to say yet. Most likely candidate is corporate credit, since low rates have fueled a corporate credit expansion unlike any time before (think Netflix, Tesla and unicorns).


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