Money supply and asset prices: Two interpretations of the one relationship

In contemporary economies, rapid money supply growth is associated with rapid growth in asset prices. But this link between the money supply and asset prices can be interpreted in two equivalent ways: Rapid money supply growth as a result of public debt monetisation leads to “portfolio rebalancing”: excess money is invested in other asset classes, causing the prices of these assets to rise until the weight of money in wealth return s to normal; A rise in asset prices drive s up demand for investment money, the level of which is proportional to the value of assets held . T he increase in demand for investment money enables an increase in the money supply and therefore public debt monetisation. The same mechanism can therefore be described in both directions, starting from either public debt monetisation or asset prices.