Is there a time capsule somewhere into which I can pop a copy of this article?

What I want to say to historians 10 or 20 years into the future is this: “In 2016, not everyone believed that pumping up asset prices with loose monetary policy would create real wealth.”

Let me explain. The global economy, and even more so the Australian economy, is at a turning point.

• Consumers give up on houses and spend on retail
• Business confidence falls again
• The real winners and losers from public asset sales
• Gold is shining now and anyone can cash in

Monetary tricks that central banks used for decades to stimulate economies are not working, and yet the vast majority of media coverage of the global economy tells the opposite story.

At the time of writing, the S&P/ASX 200 index is dancing around just above the 5000 mark.

We seem to be stuck in a gambling mentality in which real economic growth and profits are irrelevant to whether or not our poker chips increase in value.

Who built this casino?

To understand the problem, you have to go back to the late 1980s and the famous ‘Black Monday’ stock market crash (‘Black Tuesday’ in Australia’s time zone).

Alan Greenspan helped the US market bounce back from Black Monday. Photo: Getty

That crash gave then-chairman of the US Federal Reserve, Alan Greenspan, an opportunity to test a monetary policy which later became known as the ‘Greenspan Put’.

‘Put’ is a term used in derivatives markets – the buyer of a ‘put option’ has the right to sell a particular asset to the seller of that option, at a fixed price within a set timeframe. That means when things are crashing, holding those options is a big advantage.

That term came to be used for the Greenspan policy of responding to market crashes by flooding markets with cheap US-dollar credit. That’s achieved by slashing official interest rates and encouraging speculators to borrow bucketloads of cash to bid up the price of falling assets.

Greenspan was effectively saying to investors: “The Fed’s got your back – if things fall apart we can put a floor under asset prices.”

Things fall apart…

The world learned the hard way in 2008 that such a policy could not be used ad infinitum.

During the global financial crisis, as markets tumbled, Greenspan was summoned before the US Congress to explain why his old trick, now being played by incoming Fed Chair Ben Bernanke, wasn’t working.

Greenspan told them of his “shocked disbelief” that the value of assets bought and sold as securities was tumbling all around the world. How could this be?

Well, central bankers now know a bit more about this process, though it looks like some more instances of “shocked disbelief” are just around the corner.

Greed works … for a while

Investors watching world stock markets fall, rise and fall again are going to have to cross the same bridge Alan Greenspan did in 2008. They are going to have to admit that the real economy is what monetary policy is supposed to protect and nurture, not share prices.

Black Monday – Monday, October 19, 1987 – saw stock markets around the world crash. Photo: Getty

And while in more normal times share prices tell us a lot about the real economy, at present they are whipping up and down and serving two constituencies on different days.

Speculators – for that is what many ‘investors’ really are – want the Federal Reserve to keep rates on hold for as long as possible, until their bellies are bursting and they’ll just have to sell out and retire.

Everyday workers, by contrast, should be wishing to see share prices normalise, and proper price signals return to the economy – the signals that attract capital to places where it can be used to create useful goods or services.

The madness gripping markets at present is well summed up by the Wall Street Journal this week: “Investors have grown accustomed to getting help from the Federal Reserve. But … that help may not [now] be so forthcoming.

“The Fed on Wednesday said economic data had softened since it decided to raise rates in December, and that policymakers were ‘closely monitoring global economic and financial developments’. But they didn’t send a clear signal that many investors were hoping for: that they would forgo raising rates at their March meeting.”

Let’s pick that apart a bit. ‘Investors’ who are holding shares want the Fed to keep rates on hold so the value of those shares rises rather than falls.

Federal Reserve chair Janet Yellen. Photo: AAP

And yet the Fed knows that many asset prices are already bloated and it wants to return them to more normal levels – levels at which the price of the asset, and profit/yield generated by that asset, come back into kilter.

Put another way, speculators want asset prices distortions to be exacerbated, and the Fed doesn’t.

Back home in Australia, The New Daily warned in September that the Fed’s rate-tightening cycle would cause “a short period of panic, and some global capital flows that can’t be easily predicted”.

Chinese growth fears, the eurozone stagnation and the global oil price war complicate that picture, but the Fed tightening did have the expected result.

That process is ongoing, and so is the debate over how our own central bank, the RBA, will respond. Its target cash rate, at 2 per cent, can still be cut a few times if things don’t go well.

However, just as current Fed Chair Janet Yellen is reluctant to keep ultra-low rates in place and continue pumping up asset markets, the RBA should be getting tired of cutting rates to stimulate the economy, only to see the easy credit flow into asset speculation (in our case, mostly in property).

If we want growth, sustainable profits, and jobs for the next generation, we’re going to have to stop cheering anything that increases the value of our poker chips, and try to remember the companies and industries they represent.

In the current low-rates environment, that’s hard to do.

Read more columns by Rob Burgess here