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Commentary
In a recent Bloomberg article, a group of economists voiced their fears that the Federal Reserve's inflation fight may create an unnecessarily deep downturn. However, the Federal Reserve doesn’t create a downturn due to rate hikes; it creates the foundations for a crisis by unnecessarily lowering rates into negative territory and aggressively increasing its balance sheet.
It’s the malinvestment and excessive risk-taking fuelled by cheap money that leads to a recession.
Probably those same economists saw no risk in negative rates and massive money printing. It’s profoundly concerning to see that experts who remained quiet as the world accumulated $17 trillion in negative-yielding bonds and central banks' balance sheets soared to more than $20 trillion now complain that rate hikes may create a debt crisis. The debt crisis, as all market imbalances, was created when central banks led investors to believe that a negative-yielding bond was a good investment because the price would rise and compensate the loss of yield. A good old bubble....