Central banks indeed own financial markets. Gone are the days when financial analysts would pour over financial data to pick winners and losers. This science has now been reduced to watching central bank monetary policy actions. From their bags of tricks, central banks unleashed quantitative easing (a complicated name for money printing) and lowered interest rates to zero and negative in some cases and saved the world from the devastating 2008 subprime mortgage crisis.
In 2007/8 when mortgage defaults were mounting, banks collapsed as liquidity became tight. Subprime mortgage defaults were causing money to disappear from the financial system at lightning speed. The genius monetary policy actions that stopped the carnage were money printing and low interest rates. Quantitative easing and low interest rates have worked too well beyond the wildest dreams of monetary policy makers and the 2008 subprime mortgage crisis is now the stuff that history is made of.
Money was printed and given to troubled banks in a process those who didn’t want you to understand what was going on call quantitative easing. Interest rates were also lowered so that any other distressed person or entity could get relief from their financial troubles from cheap loans. The financial system was re-liquefied. Then prices of financial assets did what they do when there is too much money chasing after them. They rose.
Real estate, stocks and bonds are all in a bubble because of years of quantitative easing and low interest rates. The Federal Reserve Bank, perhaps after finally accepting that its two genius monetary policy actions are causing disastrous distortions in prices of financial assets all over the world, has started quantitative tightening (the opposite of quantitative easing) and raising interest rates.
Almost nothing was fixed in 2008. Money was simply thrown at the problem and now the money is being withdrawn but the world still gorges itself on excessive debt just like it used to in the years before 2008. Business news today is awash with consequences of these short sighted central bank monetary policy actions.
In the article from Bloomberg below, money is fleeing from Africa. It is indeed true that when elephants fight, it is the grass that suffers. Africa is a casualty of the trade wars being fought and rising USD interest rates.
https://www.bloomberg.com/news/articles/2018-06-28/market-rout-sends-african-assets-from-the-rand-to-bonds-reeling
Why is the biggest central bank insisting on such shady monetary policy? Anyway some fine details of quantitative easing are here.
https://www.bloomberg.com/news/articles/2018-06-29/how-the-fed-got-in-trouble-for-enacting-sensible-monetary-policy
Too many emerging market currencies are under pressure. Is the world heading towards a currency crisis?
https://www.bloomberg.com/news/articles/2018-06-28/emerging-market-central-banks-are-losing-battle-against-traders
There are rumors of financial panic in China. China is the world’s largest creditor and its corporate debt is about 156% of GDP. If the second largest economy of the world sneezes, everyone else will catch the cold.
https://www.bloomberg.com/news/articles/2018-06-27/china-think-tank-warns-of-financial-panic-risk-in-leaked-note
Here is a contrary opinion. But how did stocks prices rise?
https://www.bloomberg.com/view/articles/2018-06-29/forget-banks-and-worry-about-high-stock-prices
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