Over the last 30 years, bond yields have gradually evolved downward (see graph below), mostly driven by monetary expansion. The central bankers’ intent was to make money cheap so that everybody could take advantage; one could say that they have achieved their job with honour.
The principal idea behind the ongoing monetary expansion, also called quantitative easing, was to stimulate consumption by pushing up the prices of real assets such as housing and stocks. The reasoning goes that this creates value and therefore moves the economy in the right direction.
It is now however questionable, whether the massive monetary expansion seen during the last 5 years was correctly thought-out. What would happen if the stimulus were to be reduced or even withdrawn?
Would the inflation rate change and is there any chance that it would go beyond the long-term average of 3.25%.
And what would be the consequences for consumers in Europe, the USA, and EMA?
Which asset allocation would best preserve someone’s wealth?
