Many questions surround the elevated financial asset prices we are faced with today.
I'm talking not just about the sky-high prices of stocks and bonds, but also of the trillions of dollars’ worth of derivatives that are linked to them. All are intricately linked together. For instance, stocks are elevated, in part, because bond yields are so low.
These questions are important to consider because — if central banks have been too involved and gotten themselves mixed up in trying to ‘wag the dog’ by using elevated financial asset prices as a means to drive economic expansion — then the risk is a big implosion in financial asset prices if their efforts fail.