Monetary policy has become a slave to boosting asset prices. Sound money has given way to speculative impulses as major central banks suppress interest rates and investors search for yield by taking on more risk. The disconnect between the real economy and financial markets is evident not only in China but in the United States, Japan and Europe.

Unconventional monetary policy since the 2008 financial crisis has ignored the reality that financial stability flows from monetary stability and that when central banks engage in financial repression asset bubbles are sure to develop. Negative real interest rates are unnatural: they harm savers, spur speculation, and misallocate capital.
The lack of transparent rules to guide monetary policy has increased uncertainty in a world of pure fiat monies. Once asset bubbles form, central banks have been reluctant to take away the punch bowl.
The Federal Reserve has held its benchmark policy rate near zero since 2008 and has not increased the federal funds target since 2006, even though the unemployment rate is now 5.3 percent. A rate increase is expected in September, but that could be put on hold if the global economy slows.