Several authorities around the world seem keen to blow bubbles again. The US Fed is busy with another programme of Quantitative easing, keeping bond yields very low. The Japanese authorities have embarked on their double the money supply policy, and are buying Real estate Investment trusts and other assets as well as bonds with the money they are creating. It is probably only a matter of time before the European authorities find a way round their ECB constitution and German objections, and inject more cash into their banking and market systems.
The usual objection to this type of easy money is that it causes inflation. Japan can say it has not done so in Japan over the past twenty years, when QE has been part of their response to slow growth and no growth in their economy. This year inflation fears proved wrong, as commodity prices have tumbled. The most recent inflation figures from the US are low, helped by a large petrol price fall. World authorities are likely to draw comfort from the lack of advanced country inflation so far, as they find new ways to ease money.
The authorities should, however, consider asset price inflation. In the long bull market that preceeded the 2007-8 crash there was plenty of asset price inflation. Central banks ignored it, and pointed out that shop price inflation was under better control, thanks to to cheap Asian products and downward wage pressures from rapid migrations around the world.
In 2008 the advanced country authorities decided to call a halt to this asset price rise, and expose the loan book problems that followed for the banks as soon as you forced asset prices down. They brought on a slump. They then told us they would not allow this to happen again. They would order the banks to hold more cash and capital, to stop them lending too much to the private sector to bid up asset prices.
Now they are deciding to bid up asset prices by other means, especially by direct purchases of assets by the authorities themelves. This in turn generates asset inflation again. Will they this time just let it run? It would seem perverse to blow up another bubble, only to puncture it again. Were they to do so, this time surely they would have to blame themselves, for both inflating the bubble and puncturing it?