For The International Economy magazine, Summer Issue, 2021.
Question: “HOW CONCERNED ARE YOU ABOUT A BUBBLE?”
“On a scale of one to ten, how worried are you about the potential for asset bubbles bursting?”
My response: 9 out of10
Financial markets are indeed experiencing bubbles, spurred in part by easy money. Eventually, the bubbles will end. A bursting could have severe adverse consequences for the real economy, as in 1929 or 2008; but fortunately, that outcome is not guaranteed.
Asset prices are high by historical standards. For example, Shiller’s ratio of US stock prices to cyclically adjusted earnings is above 37, as of June 2021. It has been above 30 only twice before: 1929 and 2000.