Macroscope | Calm before the storm? Major central banks must act fast to prevent another global crash
Policymakers in the ‘Group of Seven’ nations continue to throw caution to the wind – but not before investors have had their fill of booming stock, credit and bond markets
If the world’s major central banks could be held responsible for being asleep at the wheel in the lead up to the 2008 global financial crash, then there is a definite case for careless driving in the build up to the next market meltdown.
World stock markets are hitting record highs, with investor sentiment spinning out of control. It is all down to extreme policy super-stimulus, interest rates running too low and market liquidity awash with too much officially-engineered synthetic money.
There will be tears before bedtime, but not before investors have had their fill of booming stock, credit and bond markets.
It has become a Pleasure Dome of never-ending festivity, with markets hell-bent on pushing the limits of super-charged sentiment, risk-taking and leverage. In the old days it used to be called “irrational exuberance”. Nowadays it seems to be “fair game” especially since it seems to have the central banks’ seal of approval.
Policymakers in the “Group of Seven” nations continue to throw caution to the wind, mainly focused on “weak” inflation and ruing fears about insipid economic recovery, rather than the implicit risk of overheated financial markets.