The double mechanism that leads to bubbles when monetary policy is very expansionary

OECD countries are now conducting a very expansionary monetary policy, which is starting to create another real estate bubble. It is important to understand that an expansionary monetary policy leads to risky asset price bubbles via two mechanisms: As savers have too much money and as the yield on risk-free bonds is very low, they switch to risky or illiquid assets; As the very low interest rates ensur e that all economic agents are solvent , they eliminate default risk and encourage risk - taking.