Are our economic over Lords losing control?
Duncan Richardson, News Editor
29 Jan 2016, 3:17 p.m.
As financial markets become more and more detached from reality the message coming from the world’s central banks is inconsistent at best. If this trend continues central bankers risk losing confidence of the market and tipping the global financial markets into turmoil.
Mark Carney, Governor of Bank of England (BoE) is a perfect example. Only a few months ago he announced the BoE would be looking to raise interest rates, only to back track when equities started to tumble.
Janet Yellen is also facing criticism over the Feds handling of U.S. interest rate policy. Last month Yellen succeeded in raising rates for the first time since the 2008 economic crash, but she is already been accused of making a policy error.
Since the U.S. rate rise global equities have fallen sharply and a number of currencies are in free fall. It’s deeply concerning that the markets perceive a quarter point rate rise as the difference between the economy recovering and one that is entering recession.
Every time the financial markets fall central banks are expected to respond and stabilise the markets. This cannot continue forever and it is imperative they stop intervening. If not, central bankers will end up controlling the entire market and free market capitalism will be confined to the history books.
In 2008 Central Banks printed trillions of dollars to save the global financial system and you could argue this was justifiable. But seven years later the European and Japanese central bankers are still printing money with little effect. Quantitative easing has help push up financial markets but had little effect in stimulating the real economy.
With another global recession looming it is debatable if Central Bank policy measures will save us next time.