Dare not raise the interest rates

Dare not raise the interest rates

“Undetected Shadow banking has been in place all around the world since the crisis 2007 and has loaded the whole world including China with the low rates loans. Today no developed country dare raises its rate much in fear of market crash. However how long could the countries keep their rates unchanged?” MG. Nov. 22, 2018

Apparently, the major world economies not only have dared not to raise their interest rates but also have decided to adopt the expanding and accommodating monetary policies. It is not a big surprise if later in 2019 they start reducing the rates back toward 0.5%. In the first week of 2019, China decreased its "required bank reserves" to stimulate the economy in response to its economic slowdown. The US federal reserve bank also said that the bank might not raise the rate in 2019 and would adjust the process of its balance sheet normalization.

On Thursday January 3th, China reduced its “bank reserve” requirements rate from 17% to 14% which was an aggressive step toward easing the monetary policies. On Friday January 4th, 2019, few surprising economic indicators were published which supported the US FED policy announcement that the rate might not be raised in 2019 and the bank balance sheet normalization process would be adjusted

These measures by China and US were strongly positive for the market and changed the global equities markets direction to positive trends. Both US and China central banks actions and announcements in the first week of 2019 had a big positive impact on the equities market on Friday Jan. 04. They have also started the trade talks since January 7, 2019 which is another positive sign for the global equities markets.

Now the question is that how long these bullish trends will last? The global equity prices have been declining in the second half of 2018 drastically which is far from a simple correction. The current global economy is not healthy at all and loaded with huge debts. The interconnected global financial system is not ready to protect itself against any fraudulent acts, social movements, and hackers attack.

these easing and expanding policies are only buying time and opportunity for the policy makers to address and solve the main issues that the financial system is facing. Unless the trade war is stopped.  the global financial system is reformed, and the global debts which have spread out among governments, corporations and people all around the world is addressed.

This positive market trends will not last long and bounce back to a speedy decreasing trend again and continue to fall as a leading indicator of the coming financial crisis. As Mr. Gordon Brown, the UK Prime minister during the last crisis is saying: “whatever created the 2007 crisis is not gone away and it will create another crisis soon. today’s leaderless world is sleep walking toward a huge economic depression”. 

Mahmoud Gonabadi. Jan 12, 2019