01/07/2022
🐺✍🏽 Asset price inflation is the economic phenomenon whereby the price of assets rise and become inflated. A common reason for higher asset prices is low interest rates. When interest rates are low, investors cannot make easy returns using low-risk methods such as government bonds or savings accounts. To still get a return on their money, investors instead have to buy up other assets such as stocks and real estate, thereby bidding up the price and creating asset price inflation.
The U.S. housing bubble is one example of asset price inflation. When people talk about inflation, they usually refer to ordinary goods and services, which is tracked by the Consumer Price Index (CPI). This index excludes financial assets. Inflation of financial assets should not be confused with inflation of consumer goods and services, as prices in the two categories are often disconnected. Both are happening ATM.
Examples of typical assets are shares and bonds (and their derivatives), as well as real estate, gold and other capital goods. They can also include alternative investment assets such as fine art, luxury watches, and venture capital.
Asset price inflation has often been followed by an asset price crash. This can happen in a sudden and sometimes unexpected fall in the price of a particular asset class.
Some believe that assets inflation has been, either by default or by design, the outcome of purposive policies pursued by central banks and political decision-makers to combat and reduce the much more visible price inflation.This could be for a variety of reasons, some overt, but others more concealed or even disreputable. Some think that it is the consequence of a natural reaction of investors to the danger of shrinking value of practically all important currencies, which, as of COVID Money Printing., seems to them highly probable due to the tremendous worldwide growth of the mass of money. Their preference for real goods pushes their price up without any purposive policies from decision-makers. So we are in this cycle.
Word To The Wise: Be $mart.
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