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
