Why do asset prices keep going up?

Hinzugefügt: 2026-05-17

[00:00:00]Okay, welcome back to Gary's Economics.

[00:00:02]Today we are going to explain why asset prices keep going up.

[00:00:08]Okay, you're probably expecting me to do a breakdown of the local election results, but I've been in France all week promoting my book. So you are getting this video which I shot last week which is inspired by the pretty insane situation which you may or may not be aware of which is that last week on both Monday the 27th and Tuesday the 28th of April which are just a couple of days ago when I'm shooting now the US stock market hit a new alltime high. Um and just sit with that for a second. Not just the US stock market, the Japanese stock market hit a new global all-time high today. I'm shooting this on the Wednesday morning, 29th. Um, and this I think is for anyone who hasn't didn't know this, this is the first thing you need to know. We're sitting here in the middle of like a a war which which has been focused on destroying the economy.

[00:01:05]That is, you know, the basically Iranian sort of primary plan is to like damage the global economy. We are expecting to see like a pretty significant collapse in living standards all around the western world. Well, not just the western world, the entire world. And yet despite this like collapse, intentional destruction of the economy, intentional collapsing of living standards, global stock markets are like in many cases the highest they've ever been. And it's not just Japan and the US, right? So, you know, Japan and the US all-time highs.

[00:01:37]The Germany stock market is not even down on the year. It's flat on the year.

[00:01:42]The UK stock market, Footsie 100, is up 21% in a year. I'll just go through them. Yeah. France up 11%. Australia is up 2%.

[00:01:52]Spain is up. Can that be right?

[00:01:56]Spain is up 32%. And you know the these are like one-year moves from a situation where even one year ago most these stock markets were at all-time highs. Uh it's not just the stock market of the gold price.

[00:02:11]Gold has gone absolutely mental. Gold has gone up 98 and a half% in the last two years. The silver price has gone up 174% in the last two years. So, so we're sitting here um in the midst of like an enormous economic crisis and what we are seeing is like all global asset prices, all global stock markets like doing incredibly well and a lot of people are confused about this because people have generally been led to believe uh and there is a general assumption that when the economy goes good, stock markets go up. When stock markets go up, it's because the economy is good. When the economy is bad, stock markets go down.

[00:02:53]If stock markets go down, that means the economy is bad. And yet here we are in in the midst of like probably the most obvious piece of economic likeness we've seen in a long time. Stock market's going through the roof. We are going to explain to you what is happening. So the first thing to say is like this is not new. So I'm talking to you now in 2026 in the midst of one economic crisis that appears to be pushing stock markets up.

[00:03:17]And obviously 5 years ago we had COVID uh which was another enormous economic crisis. And what was the long-term effect of COVID on asset prices? Gold, stocks, housing, they all went up. 2011 sovereign debt crisis pushed asset prices up and 2008 the uh obviously the the uh credit crisis, the Leman shock, the massive 2008 economic crisis in the long run pushed asset prices up. So you know what is happening? Um why is it that we have this thing happening which is like totally the opposite of what it's supposed to happening? Why does it seem to be that whenever there is an economic crisis, Iran war, COVID, 2008 crisis, why do they always push asset prices up when we expect them to push asset prices down? So a narrative was starting to form on this sort of like 10 years ago which was that so 2008 for anyone who doesn't know I guess I'm getting older now 2008 was like a a massive credit crisis. It turned out that basically like all of the banks at least in the western world had lent money to people who couldn't pay it back. Uh the banks would have gone bankrupt. The banks stopped lending. Nobody could get a loan. Governments had to like go in and bail them out. there's a massive collapse in the economy, in living standards, a massive spike in unemployment. It's generally accepted that this was bad for the economy. After that, three years later, we had the 2011 sovereign debt crisis, which was a crisis where basically primarily European governments found that traders and economists thought that they couldn't pay their debts back and uh governments in many cases were forced to do austerity. The UK was already doing austerity, but most obviously Greece was forced to do enormous public spending cuts. this was also bad for the economy.

[00:05:04]So it was generally accepted that these crises were bad for the economy. But a narrative started to form about why they pushed asset prices up which was quite simple which was that these crisis caused interest rates to be pushed down.

[00:05:21]So some context on interest rates uh interest rates which is the amount that you pay to borrow money the amount you get for lending money. Before 2008, before the the Leman crisis, they were at levels generally in in the west which are similar to where they are now, sort of 4% 5%. Um maybe a little bit higher than they are now. And um when 2008 happened, the main sort of systemic response, the main response by governments and central banks, the institutions who are supposed to manage our economy was to aggressively slash interest rates to effectively zero. Uh this happened in 2008. It also happened during COVID. So you see this this massive reduction in interest rates to zero. And this it was generally came to be accepted that the reason that asset prices did well in the long run after the 2008 Leman crisis despite the economy being weak was that interest rates were were massively massively reduced. Now, sort of in economic theory, there's supposed to be like quite a tight relationship between interest rates and asset prices.

[00:06:28]And I'll explain why. Right? So, when you look at an investment, the most simple investment you can make is to say put your money in a savings account because you you know, you put it in there and the bank's going to say like, "We're going to give you 5% a year."

[00:06:46]So say that you you put a million pound in the savings account at 5% a year. You are going to get your 5% a year which is £50,000 a year. Now let's assume you're also looking at an alternative investment which is you want to buy a blect property and you found yourself like a nice big house, big luxury house that you can rent out for £50,000 a year.

[00:07:15]Um, and you're thinking, okay, how much should I pay for it? Well, you know that if you put £1 million into a bank account, you're going to get £50,000 a year, which is the same return as this rental property. So, you would imagine since both of these investments yield a similar return of £50,000 a year, this house should also be worth maybe something close to £1 million. Now, it's a simplified example, but it makes sense, right? You know, if interest rates are 5%, then a house that gives 50 grand a year rent should be roughly equivalent to an bank account that gives £50,000 a year interest in rent. Okay?

[00:07:54]So, this house should be worth about £1 million if rates are about 5%. Now, let's assume rates are much lower, 1%.

[00:08:02]Now, if I put my £1 million in a bank account, I'm only going to get £10,000 a year. Poor me.

[00:08:10]Now, let's assume that the same house is on the market and it's still able to get something like £50,000 rent.

[00:08:19]In this example, would I be willing to pay a million for this house? Well, a million pound is only going to get me £10,000 in a bank account now. So, in order to get £50,000, the amount I would have to put in a bank account to get £50,000 now is going to be five times bigger. So this is equivalent to £5 million.

[00:08:42]So in theory, and again this is a very simplified example, if interest rates are 5% then uh a £50,000 a year rent rental house should be worth about 1 million. But if interest rates are 1% that same £50,000 a year house should be worth about 5 million, which is enormous. It's five times bigger. So I think what this shows you is just just basically and again this is a very simplified example. This shows you that in theory interest rate reductions, especially big interest rate reductions, should have in theory the power to push asset prices, especially assets that have a return like housing or like profitable stocks up really a lot. Okay, this this is very simplified, but I'm trying to give you the basic understanding that interest rates in economic theory really aggressively affect the price of assets. Because if interest rates fall a lot from 5% to 1% then I can't get any interest on my money anymore. So suddenly other assets assets that give like real returns like rental property or like a profitable company a share in a profitable company suddenly they are worth so much more relative to money. So this was basically the theory which explained why is it that in that period after 2008 that the economy was really incredibly weak for well I mean you could argue 18 years cuz it's still weak now but let's say that the 10 years following 2008 the reason the the reason that was sort of given as to why stock markets did so well despite the economy being so weak was very simply interest rates are incredibly low so nobody wants wants to have money in a savings account. Everybody wants to hold real assets instead because they give you much more return. Okay, so that that's your story, right? That's your sort of simple story. Blah blah blah.

[00:10:28]This is why that's your sort of simple story that this is why asset prices do well after 2008. But then this crazy thing happened, right? Which was we had COVID and initially COVID also caused interest rates to fall. Although in many cases interest rates were already zero even before COVID but interest rates did fall further where they could during COVID and the asset prices similar to 2008 they fell initially and then they went up but then after COVID this like really crazy thing happened which was suddenly inflation spiked and interest rates increased very very quickly. So interest rates before COVID were sort of depending on what interest rate you're looking at, you know, base rates close to zero, longerterm interest rates maybe 1 one a half%. Very quickly you're seeing base rates go up to 5% and long-term interest rates go up to like 5% or maybe more in many cases. So in COVID, what we then had was severe economic weakness combined with aggressively rising interest rates. So surely now asset prices are going to fall but what actually happened after COVID again asset prices rose really quickly. So this is like even crazier and I think really perhaps raising some questions about the correctness of the previous narrative.

[00:11:52]Like if the idea was the reason that asset prices did so well after the like economic crisis of 2008 and the economic malaise of the 2010s was because interest rates fell so much. Then what that that does not explain at all why asset prices did so well after COVID when the economy was weak and living standards were weak and also as interest rates rose significantly. And we're seeing the same thing now basically in the Iran war which is the Iran war obviously we're like in the midst of it here and now. Um I think it is pretty certain it's going to be bad for the economy, bad for living standards. Um interest rates have risen not enormously but like pretty significantly since the beginning of the war. Uh because inflation is going to rise and central banks are going to rise base rates. And yet once again we are seeing the the repetition of this like COVID dynamic of interest rates are going up, the economy is going down, living standards are falling and yet asset prices are not falling and maybe even increasing. Like what's causing that? So I am going to put forward an argument as to what has been really causing the aggressive increases in asset prices throughout the world um in the last 18 years but especially during the last five or six years since co and I will to sort of support my argument add that I have consistently correctly predicted that these asset prices would rise. So I I I if you can watch the first video on this channel that I did in 2020 at the very beginning of COVID predicting it would cause a massive increase in asset prices. Um I did a video about 2 years ago 2 and a half years ago uh predicting that we would see further aggressive increases in asset prices even though interest rates were high and rising and I made tons of money on these predictions. So I'd like to think that you know I have a little bit of a right to speak on these things. In my opinion, what has been under discussed and underderstood as a driver of these asset prices is deficits and distribution.

[00:14:11]So in a sense here I'm repeating an argument that I made at the beginning of co which is when the government runs a deficit or in essence really anybody runs a deficit somebody accumulates money and this is basically an intrinsic part of our monetary system but the way it basically works is like this you know if I borrow a ton of money and then give that money away. Somebody has to have more money now. Quite simply, I think this is something which is unfortunately not well understood and it's one of the reasons why we are in this mess. So [snorts] I think the the clearest sort of way to understand this is to look at CO itself um because I think it's just such a clear example of this happening which is at the very beginning of COVID uh we knew that governments were going to run very long-term lockdowns uh we knew that governments were going to have to subsidize people's wages and we knew that the the way that governments were going to fund that was to essentially borrow or in some cases print. we can argue the details, borrow or print an enormous amount of money and give that money out. Um, and you know, I'm not necessarily opposed to that policy, but it's important to recognize that when governments do this, when governments run very big deficits, some group of society must accumulate money. And when the deficit is enormously big, and the deficits in CO were just like like mindblowingly big. In the UK it was like £20,000 per adult. I think in the US it was like something more like like 40 or $40,000 per adult crazy huge amounts of money. When the government runs enormous enormous deficits, somebody accumulates money. And I did all this analysis at the beginning of COVID because my background is like distribution and inequality. All I really wanted to know at the beginning of COVID was who is it going to be that accumulates that is on the other side of this enormous deficit that will be run by the government. And if you want to see like the details of that, you can go and watch the first video on this channel. You can see me following it through. But I'll give you the um the uh conclusion. The conclusion I came to was that these enormous government deficits in COVID were going to end up being accumulated basically by the richest people in the country. And that happened here in the UK, but it also happened pretty much wherever you're watching, unless you're watching from Switzerland.

[00:16:46]That happened in basically every single country in the world. And that led me to be able to make these like really in my opinion like quite obvious conclusions like if if we know that what is going to happen is governments are going to run huge deficits and the richest people in the world are going to start accumulating like unbelievably enormous piles of cash. Like what is the obvious consequence of that? The most obvious consequence if you give like rich people an enormous amount of money. So something you need to understand when I talk about rich people especially you're talking like very rich people people with like 10 2000 million pounds or billions of dollars um if you give a large amount of money to somebody with that amount of wealth they by and large will not spend much of it they won't increase their spending much. Very rich people are not very cash constrained. They can already sort of buy the things they want in most cases. If you give them an enormous amount of money what are they going to do? They're going to buy assets. It's the most obvious thing they're going to do. They are going to buy assets. Like if somebody gives me now £100,000, I will buy that day £100,000 worth of assets. That is what rich people do with their money. So I think really to be honest like this really quite simply answers the question because the way that we dealt with COVID is in many ways the same way that we dealt with the 2008 financial crisis, the 2011 sovereign debt crisis in Europe, and the same way we're dealing with the Iran crisis now, which is we tried to fix it by the government running an enormous deficit leading to an accumulation of an enormous amount of cash with richer which they use to buy assets. We really have a like a established playbook now which we can see happens again and again and again and again every time there's a crisis which is the way that we resolve this is the government borrows a ton of money from the rich and gives that money back to the rich and uses that massive redistribution of wealth to basically resolve the crisis. Which means that every single crisis ends up with an enormous amount of money piling up with the rich. massive increase in inequality, massive increase in wealth and power of the rich and the most obvious consequence of that is an increase in asset prices. Um I think in COVID what happened was the amount of money given to the rich was so much that it increased the consumption and actually pushed up inflation which meant that we saw this interesting combination of asset prices going up and [snorts] interest rates going up at the same time. And you know a lot of people were really confused about that when it was happening. But the reason I was able to predict it was because that is exactly what you would expect if you just understand that rich people have been given an enormous amount of money, an enormous amount of money. The first thing that's going to happen is asset prices will rise. And the second thing is if it is sufficiently large amount of money that it even increases their consumption, inflation will go up with it, which means interest rates will go up too. And that is how we were able to see this really interesting combination of movements, which is asset prices going up, you know, gold and stocks going up at the same time. These things are supposed to move in opposite directions and interest rates going up at the same time which is supposed to push asset prices down. None of these movements when viewed by themselves make sense until you recognize what we are doing is transferring enormous amounts of money, enormous amounts of cash to the richest people in the world. And what are they going to do with that?

[00:20:11]They're going to increase their purchase of assets. And if the money is enough, they're going to increase their spending, which going to drive up inflation and interest rates as well.

[00:20:18]Okay. So how do you react to this? Okay, first thing to say is you need to recognize that asset prices going up is not good for you. Unless you are a very rich person, asset prices going up is not good for you. It is not good for workers. It is not good for ordinary people. Expensive assets mean in the first instance you cannot afford to buy a house. Your kids can't afford to buy a house and you can't afford to buy a pension. It basically means you are being squeezed out of asset ownership.

[00:20:44]You are being squeezed out of financial stability. In particular, if the reason the asset prices is going up is because your governments are giving enormous amounts of cash to the rich, then this is going to increasingly push governments into very weak financial positions. You're seeing this very clearly in the situation of the UK. But it's also happening in places like Italy, places like Greece, even places like the US are going in this direction.

[00:21:07]If you keep moving in this direction where every time you have a crisis, we deal with it by the governments giving a huge amount of money to the rich, you will all end up in situations where we are increasingly seeing the UK government in where basically they cannot borrow any more money because financial markets will not lend them any more money. And then you reach situations where suddenly you have crisis like these now and governments are increasingly powerless to defend the population from the economic consequences of things that are happening. The second thing is I think you need to stop associating high asset prices with a strong economy. This idea has like been in the public conscience for a long time. But I think it should be by now incredibly clear from the last 20 years that weak economies can and in fact very often do create incredibly expensive assets. And I think in particular we need to be able to start recognizing a particular form of economic crisis which I think is becoming like the most common and normal form of economic crisis which is an economic crisis which is primarily being driven by an increase in inequality. And when you have this increase in inequality, you see this combination of things which is weakening living standards, increasing asset prices, increasing inequality.

[00:22:28]You need to start recognizing that these increasing asset prices are a symptom of the economic weakening because you have this situation at the moment where you see Donald Trump says it explicitly says, "Oh, you know, but look, the stock market's doing well." I think you need to recognize that high house prices, high asset prices, high stock prices, high gold prices are a direct consequence of the kind of extreme inequality that is driving you and your family and ordinary families like yours into poverty. Expensive assets are a consequence of your falling living standards. The third thing that I want to say which I think is actually really worth sitting and thinking about and I think is really really interesting which if you look at crisis like 2008, if you look at crisis like COVID and the Iran war is maybe like slightly different. If an economic crisis can be resolved by governments running a massive deficit and giving that deficit to the rich and using that money to protect the living standards of poor and ordinary people, then that crisis could only ever have been a crisis of distribution.

[00:23:47]I think this is a really really important thing to understand, right? If if the government is able to stop your living standards from being hit by borrowing from the rich people and getting the assets back from the rich people, then that means the assets themselves had had never disappeared.

[00:24:04]If if production had really fallen in these situations and productive capacity had really fallen, then we wouldn't have been able to protect your living standards by borrowing from the rich.

[00:24:15]All borrowing from the rich ever does is change the distribution. So if your living standards can be protected by governments managing the distribution, then the crisis could only ever have been a crisis of distribution. And I think once you start to recognize that problems can be resolved by governments agreeing to go into debt to the rich, then you you should also be able to recognize that these living standard problems were being imposed by the rich. You know the government goes to the rich and says listen don't crush living standards we will agree to go into debt to you and the rich says okay we won't crush living standards and living standards don't get crushed it what that shows you these are crisis of distribution these are crisis of distribution and I think when you understand that that can and should be like a really profound source of positivity because what we often view as these like almost crises of sin. Like our economy, our economy is weak because we've managed it badly. Our governments are in debt because we've managed it badly. If we recognize that the reason governments are in debt is because they are trying to fix crisis of distribution, we can realize that actually the resources are all still there. Governments are going into debt because they are trying to deal with growing problems of distribution. And if we are able to deal with those distributional problems without consistently giving away government wealth and without consistently the government going in debt to the rich then these economic crisis don't need to happen. These economic crisis don't need to exist. If we deal with the distributional problem then living standards don't fall. So I think once you recognize that then you can see that if we deal more seriously with the taxation of the riches any problem that can be resolved by the government going in debt to the rich can also be resolved without the increased inequality by the government taxing the rich. It's as simple it's as simple as that. These are just two different ways of managing the distribution of resources. So I think once you really recognize the reason asset prices are going up is because inequality is increasing. The reason government debt is going up is because inequality is increasing. The reason living standards are falling is because inequality is increasing. Then you recognize we can stop all of these things. If only we stop inequality from increasing. Housing does not need to be unaffordable. We do not need to see ordinary families struggling to turn the heating on, struggling to feed their kids. You know this was not normal 70 years ago and it is normal now because we increased inequality and we can make it rare again now if we stop increasing that inequality. So I think when I look at rising asset prices what I really see is like the canary in the coal mine which is what this shows us is that the rich are getting richer and richer and richer and richer and that's being subsidized by governments going more and more and more and more into debt in a way that is not long-term sustainable.

[00:27:20]But it also shows us the potential solution which is we can stop these things from developing if only we create a tax system which taxes rich people more fairly which taxes wealth more and taxes work less which stops creating a situation where billionaires pay lower tax than their cleaners where billionaires pay lower tax than you. So what I think is this is fixable. This is 100% fixable. Um, people ask me cuz I've done this video about asset prices, like will do I think asset prices will keep going up. Um, I've been betting on it for a long time. They've gone up so much. Uh, there's obviously a chance of like big reversals in the short term.

[00:27:57]Price are incredibly volatile right now.

[00:28:00]But the fact is we are still dealing with these economic problems in such a way that every time there's a crisis, including the crisis we're having right now, what happens? Government deficits increase and the rich accumulate money.

[00:28:13]And that is absurd. After, you know, 18 years after 2008, we should not still be dealing with crisis in such a way as we massively transfer resources from governments, from welfare states to the rich. Listen, if you want economies which are stable and provide stable living conditions, you cannot accept continually increasing inequality. And the way to do that is to fight with us to tax wealth, not work. So, thanks very much. Send this video to your mom. Uh, tell your friends. Tell your family.

[00:28:46]We're winning. We're going to win. Good luck. Thank you.