What happens when you drop interest rates to zero, accelerate quantitative easing enormously by rapidly increasing money supply and start fiddling with the laws of supply and demand?

Why you get an asset bubble driving up property prices, equity prices and (today) cryptocurrency.

This is exactly what happened in Japan in the 80’s followed by almost thirty years of recession. Tokyo property prices have still not recovered to 1990 levels and the Nikkei index is now back to where it was in 1985 for the first time in 35 years!

Be very circumspect of US asset prices today. It’s not exactly the same of course but one does not want to be caught post purchase with rapid asset price deflation. Something the Japanese are still struggling with today.

In 2008 we called this “negative equity” when individuals discovered that their homes were worth half or less of their outstanding mortgage. Banks get caught out by debt deflation when the collateral securing loans already extended does not cover debt exposure. This leads to impairments which crucifies bank stocks. It’s a domino effect as you unwind this supply chain of cash and credit.

The less said about crypto the better.