The US real estate crisis caused 2008 an almost global financial crisis and recession. To alleviate, the central banks flooded the system with liquidity and the governments had to spend hundreds of billions
of Dollars and Euros to save the finance system and many jobs. The debt relief for homeowners (particularly in the USA) and banks goes hand in hand with a massive increase of public debt. Investors thus
began to question the creditworthiness of certain states, and found their answer in the GIPSI-countries (Greece, Ireland, Portugal, Spain and Italy). Thus the global financial crisis was followed by a Euro crisis.
Because in "Euroland" a devaluation is impossible, the Finance Ministers and the ECB, in some cases with the assistance of the International Monetary Fund, tried with austerity measures to rehabilitate public
finances in order to restore confidence in the Euro and also competitiveness. As a consequence, unemployment climbed to over 25 % with huge social costs. And the longer the economic recovery did not take effect,
the lower was the political acceptance and enforceability. Nowadays, we have to acknowledge that the debt problem cannot be solved with higher income and/or lower expenditures. Therefore, the ECB reversed its
policy and started a massive bond purchasing program. As a consequence, the yield of short and medium term government bonds became negative. To limit the influx of hot money, the Swiss National Bank introduced
a negative interest rate of 0.75 %.
Since 2008 the USA and Japan try with extreme low interest rates and "quantitative easing" (purchase of government bonds what is commonly called "printing money") to set an "asset price inflation" in motion and
to achieve a "wealth effect" to induce private households to spend more. The additional consumption will create jobs and kick-start the economy. While this was successful in USA, "Abenomics" did not really work
in Japan. The reason is the protectionist policy and missing reforms as well as the aging and shrinking population.
Both approaches have one thing in common: The problem of the too high public debt is not solved but postponed. And in the meantime it became apparent that the debt problem cannot be solved anymore with higher
income and/or lower expenditures because both would lead into recession with huge social costs. A "normalisation" of interest rates would lead to a stock market crash and as a consequence a reduction of consumer
spending what would depress the weak economic growth further.
Because the government coffers are empty, the economic and employment policy is on the shoulders of the central banks. Their set of instruments is, however, very limited. The only way to kick-start the economy
and reduce the weight of the debt burden (and now also fight deflation) is "asset price inflation" and as a consequence erode the purchasing power of the currencies.
Because we are in uncharted territory, not all impacts and long term consequences of the "unconventional monetary policy" of the central banks are already foreseeable. But one thing is evident already today:
The central banks on pressure from the political leaders have sacrificed the preservation of the purchasing power of their currencies in favour of employment. For investors this means to avoid all forms of
nominal values and invest only in real assets. They are subject to price fluctuations but protect from erosion of the purchasing power, devaluations, currency reforms, debt moratorium and alike.
The "asset price inflation" caused by the "unconventional monetary policy" led to an overvaluation of most asset classes (namely stocks) in Europe, Japan and USA. Therefore, utmost selectivity in choosing
investments is imperative.