By Arnold Kling
nearly every asset market you can think of is showing signs of bubblelike behavior. The reason is pretty clear: The global economy is awash in free cash.
The article makes a number of interesting allegations, not all of which I agree with. For example Pearlstein says that one would expect a lot of saving from baby boomers. Well, one may expect it, but it is not clear that we are getting it.
He says that China is printing a lot of money. That would explain why asset prices are rising in terms of Chinese currency, but not why they are rising in terms of dollars. And, if what China is doing is pegging their currency to the dollar, then if there is a monetary culprit in the alleged bubbles, it is the U.S. central bank.
In the oil market, Pearlstein writes
Phil Verleger, the energy expert…said OPEC and its silent partners, the major oil companies, know that they earn the highest profit when oil inventories are lean, and the best way to keep them lean is to keep spot prices higher than futures prices.
I have no idea how the oil producers can contrive to manipulate spot prices higher than futures prices. This phenomenon of backwardation has long puzzled me.
My view of the oil market is that speculators have been continually surprised by demand-supply imbalances. For a long time, people had conditioned to expect that when oil prices rise, they must come down.
In October, when oil was at $40 a barrel, I did not think it was a bubble. Right now, $40 would look cheap.
For Discussion. Is too much money chasing too little oil and real estate?