Why the world should not be throwing stimulus money at stock markets
- Covid-19 has hit financial markets hard because their health was in a parlous state to begin with. As central banks and governments rush to launch economic stimulus, they should stop propping up stock markets, and focus on rebuilding a more sustainable economy
This is something to keep firmly in mind as people blame the mayhem in financial markets on the “coronavirus crisis” when that is only the trigger, not the cause. Just as the coronavirus strikes hardest at the sick, it is threatening to savage an ailing economy.
Coronavirus bringing a painful, but needed, end to era of economic excess
It all served to keep economic growth going, even if that growth was based in many cases on debt-fuelled personal consumption at the expense of investment in things such as basic infrastructure or (as the coronavirus is proving) essentials such as health services and social welfare.
It is revealing that, of the collective trillions of dollars being thrown in now by panicky governments and central banks, a substantial part is going into propping up stock prices, not least by the Bank of Japan in doubling down on its purchases of exchange traded funds.
Central banks riding to the rescue of debt markets must think twice
A parallel rescue operation to supply liquidity to keep these market-critical institutions from failing (as they threatened to do in the 2008 crisis) should prevent a seizing up, but it will not restore buoyant financial activity.
Central bank financing of government debt will help get spending going again in traditional areas of Keynesian stimulus (such as infrastructure or health). The benefits will take time to appear and will not help stock market darlings. But that is not a bad thing if we want more sustainable growth in the future.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs
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