One of the great mistakes among economists is to receive the measures of central banks as if it was the revealed truth. It is surprising and concerning that it is considered mandatory to defend each one of the actions of central banks. That, of course, in public. In private, many colleagues shake their heads in disbelief at the accumulation of bubbles and imbalances. And, as on so many occasions, the lack of constructive criticism leads to institution complacency and a chain of errors that all citizens later regret.

Monetary policy in Europe has gone from being a tool to help states make structural reforms to become an excuse not to carry them out.

According to JP Morgan, equity markets have not been this expensive so early into an economic recovery phase in the last twenty years. The Greed vs Fear Index also shows extreme optimism, while the Call to Put ratio in derivatives, that reflects the derivative exposure to a rising market, is also at multi-year highs. Meanwhile, the amount of negative-yielding bonds globally has risen to $18 trillion and the High Yield Index has risen to pre-crisis levels.

Many factors explain this level of optimism in markets. The news about vaccines and estimates of a rapid economic recovery accelerated investors’ bullish bets.

United States jobless claims have picked up since the elections and the second wave of coronavirus have slowed down the economic recovery. Uncertainty about tax increases and changes in labor laws including an increase in minimum wage add to the fear of new lockdowns as employers see the devastating effect of these lockdowns in European employment.

While the United States has been able to recover fast and reduce unemployment to 6.8%, the Eurozone jobless rate rose to 8.3% before we consider the large figure of furloughed jobs that remain idle. The second wave of coronavirus in Europe has seen new government-imposed lockdowns and the impact on the economy is already severe Estimates for the fourth quarter gross domestic product assume a double-dip recession and another increase in unemployment.

Global debt is expected to soar to a record $277 trillion by the end of the year, according to the Institute of International Finance. Developed markets’ total debt -government, corporate and households- jumped to 432% of GDP in the third quarter. Emerging market debt-to-GDP hit nearly 250% in the third quarter, with China reaching 335%, and for the year the ratio is expected to reach about 365% of global GDP. Most of this massive increase of $15 trillion in one year comes from government and corporates’ response to the pandemic. However, we must remember that the total debt figure already reached record-highs in 2019 before any pandemic and in a period of growth.