I've been worrying about that for years. 2008 was bad, but to me, things since 2008 have gotten way crazier in bonds, stocks, real estate, derivatives, and overall debt. Yet, thanks to $trillions in Fed and central-bank pumping, it has so far been, "To infinity and beyond!"
I agreed with the emergency measures in 2008. Like pushing your engine to emergency power in a fight. Gotta do what you gotta do. But you don't keep flying on emergency power after the fight just because you are in a hurry. Bad for the engine.
Free money weakens the mechanism of Moral Hazard. Promotes mal-investment and misallocation of resources. Feeds excessive risk taking as investors accept more and more risk in a desperate search for yield. Retirees and institutions that should be in fixed-income are goaded into risk assets in an attempt to maintain their yearly income. Then the trap door opens.
This will be the third asset bubble that overly-loose Fed policy has inflated, leading to the inevitable crash.
1. Fed loose money policy promoted the excessive risk taking leading to the DotCom mainia. Pop!
2. Fed loose money policy promoted excessive mortgage borrowing leading to the Finiancial Crisis. Pop!
3. Fed loose money policy has lead to a stock market bubble as any other safer interest bearing option has been shut off from investors. And companies think it's smarter to borrow money to buy back their own stock rather than build factories or upgrade capabilities. That temporarily inflates the stock value long enough for executives to cash in their options. Welcome to the PoP!
Each cycle created a bigger bubble and more painful hang-over. This next one is going to breath-taking I'm afraid.