Expect even larger and longer-lasting bubbles than in the past

When bubbles in the prices of financial and real estate assets result from rapid monetary expansion and portfolio rebalancing, they come hand in hand with abnormally low long-term interest rates. So these asset price bubbles will not burst due to any rise in interest rates. Instead, they can only burst endogenously, due to the value of the assets becoming too high relative to income, leading demand for the assets to fall. If it is this endogenous mechanism that will cause bubbles to burst, then bubbles will be larger and longer-lasting than in the past, when bubbles burst due to rising interest rates. Once the COVID crisis is over, one should therefore expect a long period of rising share prices and real estate prices combined with ve ry low long-term interest rates.