Is the World Getting Crazier, But We No Longer Notice?

WASHINGTON BLOG – If we step back and look at what’s happened since the Global Financial Crisis of 2008-09, it’s easy to see that the global leadership has chosen to do more of what’s failed spectacularly.

Since the Global Financial Meltdown, central bankers and planners have pursued policies designed to boost global stock markets to create a wealth effect in which people will be psychologically inclined to borrow and spend more because their stock market/IRA portfolios are rising. This supposedly encourages them to spend this “paper wealth.”

But the policy runs aground on two realities: 1) only the top 5% of the households own enough stocks to make a difference to their wealth (and their perception of wealth, i.e. the wealth effect), and 2) the wealth effect only occurs in “good times” when people feel the economy is healthy and their prospects are improving.

When people sense the economy is unhealthy and their prospects have dimmed, they save more regardless of how much the stock market rises.

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