Central banks cannot keep pumping cheap credit into series of asset bubbles


Like children clinging to their parents, stock market traders turned to their central banks last week as they sought protection from the frightening economic figures coming out of China. Surely, they asked, the central banks would ward off the approaching bogeymen, as they had so many times since the 2008 crash.

Newsletter

Zero spam.

The US Federal Reserve came up with the goods. William Dudley, president of the bank’s New York branch, hinted that the interest rate rise many had expected next month was likely to be delayed.

A signal that borrowing costs would remain at rock bottom was all it took. After Black Monday and Wobbly Tuesday, the markets recovered to regain almost all their recent losses.

3rd Party Advertisement

It was just as if they had said to themselves: who cares if China’s economy is slowing; the “Greenspan put”, which so famously propped up US stock markets during the 1990s and early 2000s with one interest rate cut after another, is still in operation.

The meeting of the world’s most important central bankers in Jackson Hole, Wyoming, this weekend only confirmed the need for Britain, Japan, the eurozone and the US to keep monetary policy loose.

Yet the palliative offered by the Fed is akin to a parent soothing fears with another round of ice-creams despite expanding waistlines and warnings from the dentist and the doctor.

According to some City analysts, the stock markets are pumped with so much cheap credit that a crash is just around the corner. And they worry that when that crash comes, the central banks are all out of moves to prevent the aftershocks from causing a broader collapse.

Since 2008 the Fed has pumped around $4.5 trillion into the financial system. The Bank of England stopped at £375bn. The Bank of Japan is still adding to its post-crash stimulus with around $700bn a year and the Frankfurt-based European Central Bank will have matched its cousin in Tokyo by the end of the year.

 

 

Read Original Story…

FUNDAMENTALS
Forex Weekly Outlook May 22 ~ 26, 2017
Central banks cannot keep pumping cheap credit into series of asset bubbles
China stock market keeps crashing, loses all 2015 gains
Global stocks tumble as Ukraine accuses Russia of invasion
Is Yellen Asking WWBD (What Would Bernanke Do?)
About Kelvin Ching

I'm a professional Forex trader and I have been trading for over 7 years. I was a series 3 broker and a registered CTA with the NFA, the main regulatory agency in the United States, and I have been involved at the highest levels in commodity trading. I also have a background in Information Technology, graphics design, and programming... I'm the co-founder of CurrencyNewsTrading.com, a site dedicated to fundamental analysis and news trading.

Speak Your Mind

*

Newsletter

Zero spam.