The risk: A huge amount of money that is not used to consume, invest or lend, eventually leading to a bubble in residential real estate prices

As a result of the coronavirus crisis, central banks in all OECD countries have decided to massively monetise government and corporate bonds. The risk associated with this policy is that the considerable additional money that is being created: May not lead to additional consumption or investment, given the private sector’s determination to deleverage (there would then be no increase in demand for money linked to additional spending on goods and services); May not lead banks to increase their lending, due to private sector deleveraging and the deterioration in companies’ financial situation. The increase in the money supply would then be completely balanced by a rise in the prices of financial and real estate assets, in a portfolio choice logic, and especially by a rise in residential real estate prices since: Long-term interest rates will not fall (bond prices will not rise); Share prices will be weakened by the rise in risk aversion (no equity market bubble); Commercial real estate will be in trouble.