The new article titled “This isn’t 2008, but it isn’t great either” dated February 11, 2016 published in The Economist, has been looked at and summarized along with personal reflection on the matter discussed (R.A., 2016).
The article discusses the situation when most central banks have brought policy rates close to zero, with some even chartering in the negative territory, and how the markets have tumbled recently by taking such decisions into account. The article states that although banks are in a better position right now than they were in 2008 to tackle immediate liquidity concerns, the financial cycle is pointing in the wrong direction (R.A., 2016).
The article further compares the policies of major central banks, especially that of US, Europe and Japan, and makes the point that with ECB and Japanese central bank reducing rates to below zero, and Fed hinting rate hike, most of the money is flowing to safe haven currencies. As a result, equity markets have declined significantly in most markets.
In my view, the article is absolutely correct in pointing out that the situation in most countries, be it the developed economies in Europe, or the emerging markets in Asia Pacific, find themselves in the wrong curve of the financial cycle at the moment. And with most central banks taking a dovish stand, stabilisation in markets may take a long time.
The equity and commodity markets have been falling in emerging markets for over a year now, and with bond yields falling in developed markets, the situation is only going to get worse for emerging nations.
US has been relatively unharmed in the recent storm, with currency appreciating and markets in not too bad a shape. The stand taken by Fed may prove to be the difference in result now when compared to 2008.
Works Cited
R.A. This isn’t 2008, but it isn’t great either. The Economist, 11 Feb. 2016. Web. <http://www.economist.com/blogs/freeexchange/2016/02/markets-lose-faith>.
