Felix Martin’s incisive analysis –
“An unhealthy relationship developed between policymakers
and the financial markets. Whenever economic data improved, markets sold off,
because policy might one day be tightened. When the data deteriorated, markets
rallied, because it suggested that the era of cheap money would continue yet.
Good became bad. Bad became good. Such is the topsy-turvy logic on which the
longest bull market in a generation has been built. Investors ceased to focus
on real economic activity and diverted their attention to the plans of central
bankers. All that mattered for markets to thrive was that interest rates
remained at zero.”
UPDATE: Are Low Interest Rates Creating Misallocation of
Capital?
A very interesting op-ed in the FT -
“There is the issue
of capital misallocation. Low interest rates encourage people to borrow money
to invest in things that aren’t necessarily good investments — global corporate
debt has more than doubled from 26 per cent to 56 per cent of GDP according to
McKinsey.”
Related –
http://vivekjayakumar.blogspot.com/2015/08/are-stocks-overpriced.html