I once read that Economics can be summed up in the concept of ‘Supply and Demand’. The details are in either understanding how those two terms interact with each other, or in how to manipulate them.
Much as I like to believe in the idea of Free Market Capitalism, it is probably a non-existent ideal, much like a unicorn with pegasus wings. It really hurts to admit that.
Murray Rothbard and the Friedmans might be great in theory (although my impression is that they justify their arguments through utility rather than morality), but they are to economics what Anne McCaffrey’s cover artists are to science fiction / fantasy.
We’ve had huge bailouts and manipulations of the stock market and the economy ever since the GFC 13 years ago. Bankers and captains of industry do not care. They get their massive bonuses regardless of whether they come from their customers or the taxpayer.
Thanks to all this distortion, share markets and other aspects of the capitalist system do not seem to behave in a way which fits in with what one would expect when we have lockdowns and shortages, and a large number of people forcibly prevented from working.
You would expect, if it were not for money printing of various forms by reserve banks and governments, for interest rates to go up and for asset prices to go down. You also might expect that inflation on commodities to go up.
At the very least, you would expect a bear market on the share market. I know that I did!
Counter-intuitively, at least as far as I am concerned, we have the share market hitting record highs at the moment. It is melting upward, rather than melting down the way it did in March last year.
I am not an economist, I am just a mug punter. I think that the immediate impact of all the money printing has been to stave off what I consider to be inevitable (ie crash!!!!) – to force money into shares and property to chase yield, whilst at the same time placating people at the lower end of the wealth spectrum with enough to help them keep body and soul together.
How long this lasts is another thing. Home ownership is receding further out of reach for many people – artificially low interest rates push up property prices for those who are already property owners, and force those who want to become such to go much further into debt than would normally be sustainable.
And if you are a share market investor, then August has been an awesome month for you.
As an aside – last year I said that I would put my money back into the share market when I ran out of toilet paper. I actually changed my mind and emptied my bank accounts over the past 10 months. I am glad that I did, as I otherwise would have missed out on this huge upswing.