‘Lost decades’ for developed nations, but...
Across the developed world, all markets (except gold) have been dominated by government and central bank measures for more than two years now. Even bond markets have been weighed by these two principal drivers. This is important because the charts for key bond indices now show a life of two parts. Pre-Sep 2007, the charts exhibit private and market determined trends. In the aftermath of the crisis officially unfolding in August 2007, the charts developed a different life in which the influence of government and central bank had increased in a pronounced manner to temporarily trample risk. As a result, the signalling effects are completely different now. We may be effectively looking at apples and oranges. This attribute of government and central bank support is also true to an extent for economies in the emerging world and their equity markets; their economies have responded by showing robust growth, which is likely to be of a sustainable nature. The policy measures have not gone to a stage where they have taken signalling effects out and this is a notable credit in the present context of the global economic trends. In contrast, economies in the developed world have just about managed to avert the downward trend with all the support. Whatever nominal growth has been reported is almost entirely driven by the effects of government stimulus and favourable central bank policy. This is, therefore, not of a sustainable nature unless governments go far in stretching support for extended periods. There is not much headroom for additional support, especially in terms of monetary policy too, except to keep rates low for extended periods, which the Federal Reserve has clearly stated is its intent. It is in this backdrop that we need to examine the effects of life beyond government support in different parts of the world. When there is talk of focussing on deficit reduction and interest... [continues]
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