The Growing Bubble–In Everything

By Joseph T. Salerno

Even the New York Times believes that there may be a bubble a-brewin’.  As NYT columnist Neil Irwin writes:

Welcome to the Everything Boom — and, quite possibly, the Everything Bubble. Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals. The inverse of that is relatively low returns for investors.

Signs of an incipient bubble abound.  The Art Deco office tower in Manhattan, assessed at $466 million by an industry publication three month earlier, sold for $585 million in May.  Spain, which suffered a debt crisis two years ago, recently sold bonds a the lowest interest rates since 1789.  In the largest junk bond deal in history, a French television company just borrowed $11 billion dollars at 4.875%.  Based on the S&P stock index, investments in American stocks average a return of 5.5 cents on the dollar, down from 7.4 cents just two years ago, while investments in Manhattan office buildings yield a rental return net of  expenses of 4.4 percent, lower than the rate  of return at the height of the last bubble in 2007.

In the meantime, ex-Fed Chair Ben Bernanke, now comfortably ensconced at the left-leaning Brookings Institution, has confided that he has changed his mind in assigning blame for the last bubble to a “global savings glut.”  In a recent interview, Bernanke explained:

I may have made a mistake in trying to assign a name.  A glut means more than is wanted. But it doesn’t necessarily arise because people want to save more. It can be because they invest less.  It’s entirely possible that if you look at the world, you have slow-growing advanced economies, China cutting back on capital investments, that the rate of return is just going to be low.

So once again Bernanke stands ready to blame market failure–this time, the failure to generate sufficient investment opportunities–for the devastating financial crisis that looms just ahead and whose actual cause is the Fed’s policy of recklessly expanding money and credit.

The above originally appeared at Mises.org and is reprinted with permission.