Why is this so?
In effect, central banks and states have masked the devastating stagnation of real income by encouraging households to take on debt to augment declining income and by inflating assets via quantitative easing and lowering interest rates and bond yields to near-zero (or more recently, less than zero).
The "wealth" created by asset inflation generates a "wealth effect" in which credulous investors, pension fund managers, the financial media, etc. start believing the flood of new "wealth" is permanent and can be counted on to pay future incomes and claims.
Asset inflation is visible in stocks, bonds and real estate:
soaring central bank balance sheets, credit expansion that far outpaces GDP growth and ZIRP (zero interest rate policy):
As asset inflation takes off, the capital gains attract more capital (never mind if yields are low--we'll make a killing from capital gains as the asset inflates further) which creates a self-reinforcing feedback: the more assets inflate, the more attractive they become to capital seeking any kind of return.
Institutional money managers are buying bonds that yield less than zero not because they're pleased to lose money, but because they anticipate rates dropping further.
As bond yields decline, the value of existing bonds paying higher interest rises. As crazy as it sounds, buying a bond paying -0.01% will be a highly profitable trade if the yield on future bonds drops to -0.1%.
With the cost of borrowing less than zero once the loss of purchasing power (i.e. consumer price inflation) is factored in, it makes sense to borrow money to increase speculative asset purchases to leverage up any gains from future asset inflation.
Take a look at the S&P 500's rise to the stratosphere and ponder the monumental losses that would accrue to any institution that thought asset inflation was a permanent feature of modern life:
one is for central banks and states to buy up major chunks of all asset classes, i.e. hitting every higher bid regardless of the risks of such a strategy, and the second is to , for example, paying households to buy a house with a mortgage:
The collapse of asset inflation will implode all the fiscal and financial promises based on ever-inflating assets and reveal the unsustainability of the status quo's strategy of substituting debt and asset bubbles for stagnating real income.