In my last blog posting, I wrote that a lot of the market's current woes can be traced to the "easy money'' policies pursued by central banks everywhere. I didn't know at the time that other commentators were thinking exactly the same thing. BT's Europe correspondent Neil Berhmanm for example, in our 2 Sep edition wrote an article headlined "Blame the top central bankers for the financial casino'' in which he said "officials of the Fed, BOE and BOJ who just met in Jackson Hole, Wyoming, should look into a mirror and chide themselves for the historically untested experiment of unprecedented monetary-ease and zero interest rate policies''. On the Fed, Neil writes "Former Fed chairman Ben Bernanke's initial liquidity injection helped ease the 2008 credit crunch, but he and his successor Janet Yellen's subsequent quantitative easing programme have recent years have created a host of global problems, including fickle foreign money pouring into Asian and other emerging markets and then fleeing again''.
Also on 2 Sep in Straits Times, William D Cohan in his "The Fed should show some spine'' wrote that the Fed should forget about the impact a rate hike would have on stocks and just do it. "The case for raising rates is straightforward. Like any commodity, the price of borrowing money - interest rates - should be determined by supply and demand, not by manipulation by a market benemoth. QE caused a widespread mispricing of risk, deluding investors into underestimating risk of the financial assets they were buying. The only way to return the assessment of risk to something resembling normalcy is to stop the manipulation''. Sadly, Mr Cohan notes that the Fed doesn't seem to have to "intestinal fortitude'' to do this and looks like it will cave in to Wall St's demands.
I could go on but I think readers have gotten the message. You have to ensure the economy does well and then watch risky assets rise because the economy is doing well, not inflate risky assets for years and hope for a trickle down to the economy.
Put differently, you can kick the can down the road time and again, but eventually you'll reach the end of the road. Then what?