How can the balance sheets of banks consistently grow four to five times faster than the underlying economy? How can off-balance sheet activities of banks consistently outpace on-balancesheet growth without signalling some sort of distortion? How can profit targets and bonuses keep on rising year after year, while the underlying real economy is still very much the same?
It is human nature to be more tolerant of continuous rises in asset prices than of price declines. Perhaps we should be more careful in future: if growth rates and price increases are not justified by developments in the underlying activity in the real economy, asset bubbles develop, and the effects when such bubbles burst can be very serious.