Why central bank policy is terrible but you have to deal with it
It’s just like in a comedy movie. And to me it looks like that the people have absolutely no idea about the monetary policy and how they handle it.
So yes we have a crisis right now and that is something that also our big central banks from the US and Europe already have recognized.
But the effectiveness of their tools to support the economy is pretty bad. Why is that so ?
Well if we look a little bit deeper into our current crisis which has appeared by the consequences of the corona virus we can see that we have to deal with a double shock from the supply and demand site. This is something we haven’t seen in the last 100 years in the market and so it is a new phenomenon for all people who participate in the markets. But the central bank policy is pretty easy to understand: We print more money and increase the money supply to keep our market liquid. Moreover we put interest rates near zero and start quantitative easing to support the bond market which also leads to more money supply in the stock market.
But does that really work ? As I menaced before we have a supply and demand shock that means people are fearful to make any new investments one the one site and on the other site these people can’t also go to work to earn some money and pay the bills.
So a pretty dramatic situation like we have it never seen before. What really helps are not the actions by the FED or the ECB. In my view it’s about the activities made by the federal government. Many companies are already under water and don’t know how to pay the bills and if they’re able to recover from this hick any time soon. What these companies really need are direct payments and tax suspensions by the government. The government has to give these companies some kind of stability right now and this could also lead to more stability in the financial markets. The central banks already gave the market the signal that they will do everything that is possible to keep the markets liquid. And thats pretty much everything that they can do right now. The real challenge will face the governments of this world if they have to accomplish the way from crisis to recovery in aspect of the worldwide economy.
We see pretty bad numbers at the moment especially the job numbers in the US. Time for the markets to react on it in a proper way.
So yes we have a crisis right now and that is something that also our big central banks from the US and Europe already have recognized.
But the effectiveness of their tools to support the economy is pretty bad. Why is that so ?
Well if we look a little bit deeper into our current crisis which has appeared by the consequences of the corona virus we can see that we have to deal with a double shock from the supply and demand site. This is something we haven’t seen in the last 100 years in the market and so it is a new phenomenon for all people who participate in the markets. But the central bank policy is pretty easy to understand: We print more money and increase the money supply to keep our market liquid. Moreover we put interest rates near zero and start quantitative easing to support the bond market which also leads to more money supply in the stock market.
But does that really work ? As I menaced before we have a supply and demand shock that means people are fearful to make any new investments one the one site and on the other site these people can’t also go to work to earn some money and pay the bills.
So a pretty dramatic situation like we have it never seen before. What really helps are not the actions by the FED or the ECB. In my view it’s about the activities made by the federal government. Many companies are already under water and don’t know how to pay the bills and if they’re able to recover from this hick any time soon. What these companies really need are direct payments and tax suspensions by the government. The government has to give these companies some kind of stability right now and this could also lead to more stability in the financial markets. The central banks already gave the market the signal that they will do everything that is possible to keep the markets liquid. And thats pretty much everything that they can do right now. The real challenge will face the governments of this world if they have to accomplish the way from crisis to recovery in aspect of the worldwide economy.
We see pretty bad numbers at the moment especially the job numbers in the US. Time for the markets to react on it in a proper way.
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