The pace of global economic recovery is stumbling, the problem of wealth disparity is getting more and more serious, but the U.S. stock market is at an all-Time high, the “Dr. Doomsday” well-known economist Nouriel Roubini (Nouriel Roubini) warned that the U.S. financial markets and the economy are in a bubble, the bull market obviously will not end well, U.S. stocks are afraid that eventually There is a good chance that the U.S. stock market will end up in a crash similar to the one in 2008.
As the saying goes, “the poor get poorer, the rich get richer”, Roubini believes that the U.S. economy is now experiencing a “K-shaped recovery”, the U.S. stock market, no matter how the boom, for most people are meaningless, because the bottom 50% of the U.S. wealth pyramid, their combined assets in U.S. stocks is only about $200 million. The bottom 50% of the U.S. wealth pyramid, whose combined U.S. stock assets account for only 0.7%, the top 10% hold 87.2%, and the top 51.8%. In other words, the richest 50 Americans hold as much wealth as the bottom 165 million Americans.
He added that the “solution” to the problem has long been to resort to “financial democratization,” i.e., to give poor families access to borrowing to buy homes they can’t afford, and then to use the net value of their homes as an ATM. The great expansion of consumer credit, including mortgages and other debt, culminated in a super bubble that ended in the 2008 global financial crisis, when millions of Americans lost their jobs, homes and savings.
Now, these millennials, who were robbed a decade ago, are falling into the trap again. According to Roubini, those working in casual or odd jobs, or as so-called freelancers, see a new “financial democratization” rope that they think they can climb to a higher position, but in reality, it is a deadly noose. In short, in this new scam, millions of people opened accounts at U.S. brokerages, online trading apps like Robinhood or other trading apps, taking on massive debt and betting several times their income on stocks that were actually worthless.
He also mentioned that, to add insult to injury, the market has finally begun to worry about the super-experiment of the US Federal Reserve and Treasury Department under the banner of “quantitative easing” (i.e. “helicopter money”), which is essentially the monetization of the budget deficit. More and more analysis believes that the practice will eventually lead to economic overheating, forcing the Federal Reserve to start raising interest rates at a much earlier point than the market expects. At both the nominal and real levels, bond yields have begun to rise and the ground has begun to shake under the feet of risky assets such as equities. While market participants are worried about the Federal Reserve triggering another “tapering fury” market, the economic recovery is no longer seen by them as good news, but instead as a potential trigger for consolidation.
The U.S. Democratic Party is pushing forward with a $1.9 trillion aid package, and Roubini pointed out that most of it is theoretically a direct support grant for families, but the problem is that millions of families are already heavily in debt, defaulting on their rent, utility bills, mortgages, credit card debt, etc., meaning that most of the money given directly to families and individuals will be used to pay off debts or saved up. Only about 1/3 of the total stimulus money is expected to be converted into actual spending. Therefore, the impact of the stimulus package on economic growth, Inflation, and bond yields will most likely be much smaller than expected.
In addition, he believes that the additional savings will sooner or later flow into government bonds, meaning that in the end, the so-called aid to American households in distress will essentially be aid to banks and other lending institutions.
He said that under the combined effect of fiscal deficit monetization and adverse demand-side shocks, inflation may still become a reality, eventually making the U.S. economy to stagflation. Just about the possibility is already part of the medium-term forecast, at least 2021 for the time being do not have to consider.
Looking ahead to this year, he said the real growth rate of the U.S. economy may well fall short of expectations. New variants of the New Coronavirus (CCP) virus continue to emerge, leaving markets concerned that the established vaccine is likely no longer sufficient to end the outbreak. The process of the economy constantly starting and blocking, and starting and blocking again will continue to erode market confidence and increase the political pressure to restart the economy before the Epidemic is completely over. Many small and medium-sized businesses are still struggling on the brink of bankruptcy, and too many people are facing the prospect of long-term unemployment. A very long list of economic headwinds can be drawn up, such as growing inequality between rich and poor, forced deleveraging of businesses and households, and various political and geopolitical risks.
However, the super-easy monetary policy has made the asset market bubble strong, or can simply say that it is already in the bubble. Now the U.S. stock P/E ratio has been close to the 1929 and 2000 kind of giant bubble burst on the eve of the high, and market leverage is still increasing, special purpose acquisition companies (SPAC) more and more hot, and big technology stocks, virtual currency, etc., there are too many things in today’s market are impossible not to nervous. The Federal Reserve may be worried that once they remove the party “glass”, the market will plunge.
Roubini pointed out that, along with the continued surge in public and private sector debt, the possibility of medium-term stagflation in the U.S. economy, as well as asset markets and the possibility of an eventual hard landing of the economy itself, is growing every day.
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