Markets are currently riding on the wave of uncertainty and speculation over whether the world's central banks will continue to pump in more and more cash into the economy though bond-buying programs known as quantitative easing (QE). But as we go deeper into the world of easy money from central banks, there are other areas of the economy that could see a knock-on effect.
Alberto Gallo, head of macro strategies and manager of the Algebris Macro Credit Fund, describes this paradox as "QE infinity," whereby low rates and seemingly endless rounds of bond-buying programs encourage cheap borrowing, and investment in financial markets -- but not in the real economy.
"The problem is rising debt and monetary easing comes with many collateral effects. One is the distortion of asset prices, leading to asset bubbles," Gallo explained on his website.
"Asset price distortion also has a ripple effect on wealth distribution, increasing inequality by benefitting the already-wealthy who are more likely to hold financial assets. Over time, low rates and QE can also encourage misallocation of resources to leverage-sensitive sectors, including real estate and construction."