A significant downturn in global economies will inevitably lead to a coordinated quantitative easing. The Fed is likely to lead the efforts, followed by China and Europe. Europe may want to consider the fact that it is better monetary policy to purchase assets directly, rather than using banks to take the risk to do it. One bank may fail, but a failed government will always be bought.
Let us not forget the ECB last raised interest rates in July 2011. Bond markets eventually hold governments accountable, as seen in Greece and Italy. The distressed Eurozone needs a flush of liquidity. The scale of liquidity needed in regional Euro economies, may be too much for Merkel's conservatives to stomach. The effect of a Greece exit, will lead to a stronger Euro and significantly lower valued Athens pound, rather than ounce or gram. The German effect will stifle manufactured goods, making them prohibitively expensive on world markets. All this, unless the Euro finds a way to muddle though, which they have become remarkably adept. The guaranteed backing of government debt in the form of direct asset purchases will go a long way to creating a more cohesive monetary union, if they are unable to develop regional fiscal relationships.
To keep the currency peg honest, China must match the US for every theoretical dollar of stimulus. The lower interest rates for banks is likely to feed continued stimulation of the housing bubble that has occurred based on the demand of one billion residents, inching towards more economic and individual freedom from repression. The impact may also spillover into the search for energy assets, including higher oil prices. I am surprised the flush of liquidity has not already taken effect in energy markets, less the bounce back was more closely tied to direct government expenditures than we think. At what point does global demand for assets exceed supply? Last time I checked, there were only 7.011 billion people in the world.
Let us not forget the ECB last raised interest rates in July 2011. Bond markets eventually hold governments accountable, as seen in Greece and Italy. The distressed Eurozone needs a flush of liquidity. The scale of liquidity needed in regional Euro economies, may be too much for Merkel's conservatives to stomach. The effect of a Greece exit, will lead to a stronger Euro and significantly lower valued Athens pound, rather than ounce or gram. The German effect will stifle manufactured goods, making them prohibitively expensive on world markets. All this, unless the Euro finds a way to muddle though, which they have become remarkably adept. The guaranteed backing of government debt in the form of direct asset purchases will go a long way to creating a more cohesive monetary union, if they are unable to develop regional fiscal relationships.
To keep the currency peg honest, China must match the US for every theoretical dollar of stimulus. The lower interest rates for banks is likely to feed continued stimulation of the housing bubble that has occurred based on the demand of one billion residents, inching towards more economic and individual freedom from repression. The impact may also spillover into the search for energy assets, including higher oil prices. I am surprised the flush of liquidity has not already taken effect in energy markets, less the bounce back was more closely tied to direct government expenditures than we think. At what point does global demand for assets exceed supply? Last time I checked, there were only 7.011 billion people in the world.
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