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The end is near, the central bank can no longer save the world


The financial crisis that happened in 2008 initiated spending of trillions of dollars. The idea behind this was to revive the financial system. However, the invested effort could have a negative impact on the global economy.

Jean-Claude Trichet commented that zero rates and money printing were inefficient. The purpose of this was to give enough time to governments to recuperate and solve their financial crisis. The time to solve the financial crisis has passed and the prices of bonds have to go up.

Even though it has been delayed, the interest rates must be increased now. The Banks of England, the European Central Bank and the Bank of Japan have implemented quantitative easing. This is a form of purchasing of financial assets, like government bonds, electronically with the new money created for such purpose.

Based on the report made by Reuters, these countries spent around $7 trillion in bond purchases.

Group of Thirty reported that prices of stocks and housing are artificially inflated because the economic growth in many countries is not at the expected level. Advanced economies are actually faced with many debts.

The Federal Reserve is going to increase interest rates slowly. The purpose of this is to avoid putting a lot of pressure on the US economy.

A forecast presented at the semi-annual IMF meetings showed that the risks for the world economy are under control.

If interest rates remain low, the central bank would be able to encourage growth by preserving or prolonging bond programs. They are also faced with the decline of the price of financial assets.

According to a report by G30, further capital losses have to be avoided because they have an impact on investors and banks. In addition to this, the process of extend and pretend for poor loans must be stopped.


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