MacroscopePumped-up stock markets are no indication of a country’s economic health
- Stock market prices in Japan, the US and elsewhere are being inflated by stimulus, suggesting a picture of economic health. But a correction delayed is not a correction averted
It’s remarkable how quickly a limp, lifeless balloon becomes a bouncy, bobbing object ready to take flight once connected to a cylinder of helium gas. We might say the same of national economies and stock market stimulus.
But what kind of economic growth is it that depends on injections of gas (maybe financial “liquidity” is a better term) to stimulate and sustain it? It is more apparent than real and it is what economists might term “low quality”.
Productivity-enhancing capital investments in manufacturing, infrastructure (digital as well physical) and human resources, for example, boost growth rates and absolute gross domestic product. But how many people watch these?
Instead, a key indicator of economic health that people look to increasingly is the level of a nation’s stock market, and that can be influenced or manipulated by domestic monetary policy and international capital flows.