All this cash has to go somewhere
So the AFR was running the story last week that booming house prices had lifted Aussie’s net worth by $1 trillion in just six months.
Nice. Nice if you own a house. Very nice if you own several houses.
(Yes I am doing very well lately, thank you.)
You can see on this chart here from the RBA, that household wealth is growing at 20% a year – one of the fastest growth rates on record – largely thanks to housing wealth.
Now, if you’ve been following my blog since the Covid crisis started none of this will be a surprise to you.
I knew that as soon as the developed world announced that we’d be printing money like crazy, a boom in asset prices and wealth was inevitable.
And that’s exactly what happened.
I mean check out this chart here on financial assets as a percent of GDP in the US. That has gone absolutely bananas.
We were worried about a bubble at 4x. What do we make of 6x!??
But bubble isn’t the right word because this epic boom in asset values is built on something very real – money.
Gajoogles and gajoogles of money. Freshly printed money. Just flowing into the system.
Of course that money itself is not real. Some boffin at the central bank just pressed a button and made it up.
But once they did, it became real money, and it became real money that went gushing into the system.
And all that money went looking for a home, bidding up assets as far as the eye could see.
And for the first time ever, we tried the same trick here. The RBA’s balance sheet – which is a measure of how much their printing, sky-rocketed. It went from about $160bn to more than $350bn! It more than doubled!
If that looks epic, it’s because it is. I mean, take a look at the UK’s version. The Bank of England’s balance sheet exploded to 35% of GDP. That’s the highest level since at least 1770!
Now, let’s come back to our original chart.
That shows household wealth growing at 20% a year.
Now if I told you that the RBA had doubled it balance’s sheet, the Bank of England was on the biggest spending spree since 1770, financial assets in the US have gone to 6x GDP, do you reckon we’re done at just 20%
Don’t you think this whole thing could go much, much higher?
That’d be my bet.