Individually rational, collectively insane
A sober reflection of a practical economist after negative repo rates, GameStop saga and Bitcoin craze.
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REFERRING to the Bitcoin phenomenon as a craze must, in the eyes of its enthusiasts, reflect my bias already. As a finance academic and long-time market watcher, I can't help but see the stratospheric Bitcoin price, along with negative 10-year US Treasury repo rates (reaching minus 4.25 per cent) and how social media propelled GameStop's rise and fall, as a collective symptom of the underlying illness of the global economic system.
Were I a diehard efficient markets believer, I would scratch my head hard to find some information-motivated explanation for each of these phenomena. Being a practical economist though, I have come to a conclusion that markets have gone "rationally insane" (if that makes any sense), displaying the cumulative effect of the distortion created by the macroeconomic and financial policies of the world's major economic powers post the 2008-09 global financial crisis. The distortion has been further exacerbated by the Covid-19 pandemic. Now let me elaborate.
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