Are we in the biggest and most dangerous bubble in the history?
The stock market is booming again, interest rates remain close to zero, the global debt is ballooning and Central Banks keep printing money non-stop. But where does this money go and what is happening in the real economy?
The global debt is now close to $260 trillion and the debt to GDP ratio surpassed 330%. In the Q2 2020, the debt increased by $12.5 trillion, with the 60% of that coming from governments.
Economists (and not only) globally seem to be confused with what is going on in the US stock market, and they are wondering when it is going to stop and what the side effects will be. The unemployment rates have been increasing the last few months, the global economy is in a very bad situation and it doesn't seem that it will recover any time soon. The profitability and revenue of companies have decreased by much and some are already going bankrupt. Moreover, Central Banks all over the world have printed more than $10 trillion, with the majority of that money going to banks and financial markets. The Fed itself is buying ETFs, corporate (and junk) bonds and even the direct purchase of stocks is being discussed.
All these, in combination with the dangerous addiction in cheap money, have created (again) a huge and dangerous bubble in most of the markets and in midst of a recession and crisis. For the first time in the history, the total market capitalization of the US stock market has surpassed the GDP by more than 150%. Specifically, the market cap to GDP ratio is now more than 170%. Is the market now completely disconnected from the economy? Stocks are rising, precious metals are rising, cryptocurrencies are rising. What is going on?
At the same time the wealth inequality is increasing and worsening. The Central Bank policies have created even more issues, as well as the equities share of the bottom 90% have been decreasing.
Helicopter Money and debt relief are essential for the recovery of the global economy.
Debt relief, and maybe cancellation, between countries that are in difficult situation is needed, otherwise the global economy will not recover any time soon. Helicopter and stimulus money are also needed. With layoffs rising, businesses closing and with the demand and supply being down, the only solution is giving money directly to the citizens in order to cover the income loss and to see the global economy recovering. Some people say that helicopter money may cause inflation problems, but this will not happen if done correctly and the money go to recover the losses. It will help millions of people that lost their jobs all these months and have many problems. Unfortunately, until now the opposite is happening as most money go to pump the markets and cover the bank losses.
How can people protect themselves by an upcoming economic crisis or a bubble that is ready to burst?
The most important thing during an economic crisis or recession is liquidity. Either you are an investor or not, another market crash in the near future will affect the whole economy and have destructive results. Cash on hand and an emergency fund (of at least 6 months) are the most important things you should have. After that, there are some extra things someone could do for hedging, like investing in precious metals, real estate and recently many people are also investing in cryptocurrencies. The sure thing is that we are in a very dangerous bubble that can burst anytime if Central Banks stop pumping money into the financial markets. Central Banks have proven for one more time that they do not care for good policies and sustainable solutions. It is the time for many and radical changes.