Ten years of cheap money
Some analysts talk about currency wars, others emphasize the acute problem of disinflation on trying to explain the process of cutting rates by central banks around the world. The fact is that we have eight years of monetary easing and much probably this process will continue the next two others. This year 24 central banks have lowered interest rates. Today was the turn of BOK (bank of Korea). This bank cuts a further 0.25% to the record level of 1.75%. We have seen this process in the past eight years with some exception. Now economists and investors are trying to understand for how long is this process going to continue? The major economic blocks have gone further, combining the process of lowering rates with a process of Quantitative Easing.
Perhaps the world has entered in a decreasing productivity process. This could be because a big part of the new technology has been already distributed around the world. May be the growth potential of the world is not more the one it was twenty years before. China has already reached considerable stage of development. In a few words, the world could slow down the pace.
The price of oil has fallen considerably but not as much as it seems on the chart because of the dollar strength. In any case this decline is failing on pushing higher the world’s growth.
Years before the global crisis of 2007, investors were worried about the rising levels of salaries in China because this country is considered the world’s factory. The rise of the inflation in this country could be exported very quickly. Nowadays investors seem to be worried more about the deflation that many countries are exporting. So the question remains. Which is today the big problem of the world’s economic growth? When we will see the central banks starting to raise rates?
We are living in a world of cheap money. But cheap money is not a sufficient reason to borrow it, if there are no opportunities where to invest.