The modern practice of inflationary monetary policies has drastic, wide-reaching effects on the economy.
Over the last 40 years, monetary policy has caused interest rates to decline from a high of around 20% down to the zero bound. During the same period, the U.S. dollar (USD) money supply has expanded at a rate never before seen in modern history and asset prices in dollar terms exploded to the upside, all while the U.S. average hourly wage has lagged on an unprecedented scale.
Ironically, the growing wealth gap, caused by lagging wages and rising asset prices, has occurred while the Federal Reserve (Fed) has been targeting a 2% inflation rate and pushing the narrative that inflation is good for the economy, good for economic growth and, most of all, good for the average Joe. This makes us wonder why the Federal Reserve, through monetary policy, is adjusting interest rates and setting inflation targets and whether this intervention is really benefiting the economy.
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The European debt and equity markets shrugged off the impact of a nearly total shutdown due to COVID-19 at the end of the first quarter of 2020 to rebound with strong performances in the second half of the year. As activity resumed in the late spring, a number of key trends emerged, involving covenant flexibility in high-yield bonds as well as resilient equity markets in the face of both COVID-19 and the impact of pending Brexit regulation.
High-Yield Debt: The strong start to 2020 for the European high-yield market, in which bonds regained their market share from the loan market, came to an abrupt halt in March 2020, when governments imposed restrictions due to the COVID-19 pandemic. Markets began returning to life in May and June, leading to a very strong year for European high-yield issuance. An increase in default rates in 2020 reflects at least in part the impact of COVID-19 and the measures taken in response to the