In "Two Cheers for Minsky," the narration of the sequence of events leading up to the crash of 2008 slipped into the present tense. Which leads to the question: are we in the process of inflating new asset bubbles today?
Answer: not yet. The inequality of incomes and the resulting excess savings and paucity of sound investments is still with us. In other words, the macroeconomic preconditions for a bubble are there. And irrationality has certainly crept into the bond market: it is just not credible that Treasury bond prices can continue to reflect yields less than the expected rate of inflation. And perhaps there is froth in some other markets like high-tech stocks.
But it is too soon for investors to have forgotten the carnage of 2008, and the (temporary) downturn of last summer. They are keeping stock prices generally in the middle range of historical valuations. The price-earnings ratio on the stock market as a whole has historically varied from around 10 in depressed periods to around 20 in euphoric periods; currently it is around 15.
Irrational exuberance of the mid-2000s variety has not returned yet, but one of these days, no doubt it will.
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