Watch Out for Interest Rates
Oh no. They’re at it again. We’re trying to recover from the global economic crisis and it seems the centralized banks can’t leave well enough alone. At least that is what the average man in the street is going to think when interest rates are increased by the European Central Bank (ECB) later on this week. The Bank of England wants to keep its rates on hold when it assembles on Thursday but it may be pressured to do otherwise according to reports.
All this activity would make sense if the world economic crisis was still going down the tube. But that is not the case. Indeed right now it looks like it’s on the right track. So it doesn’t make all that much sense what is going on. London & Capital tried to explain it as follows: “When things get better, ironically, this is the time to worry as authorities could withdraw support and subsequently impact on the corresponding risk markets.”
Truth be told, things haven’t been improving all that much, especially with worldwide disaster events that took place last month most notably in Japan and Libya, but somewhat surprisingly this didn’t add to the risk of bonds stability. As well, world traders were said to have “cut overall bond allocations,” with losses encountered by Citi bank’s government bonds last month and the World Government Bond Index plummeting 0.14 percent during the same time frame.
Recovery: East Versus West
Still, there is some good news. There has been seen to have been some major recovery in certain parts of the world, most notably parts of Asia (China and India specifically), following the poor economic situation in 2008 and 2009. This proves that these countries are now stable enough to not to need to rely on the strength of western economies such as America that are currently facing a downward spiral.
Indeed how things have changed. It’s now countries such as China which are “leading the transformation,” a country that just 30 years ago was described as an “economic backwater” but which last year was seen replacing Japan as the world’s no.2 economy. Not that anyone would be realistic in having such high expectations for Japan following its own mega-crises.
Escalation of Emerging Economies
Today also of note is the development of emerging economies which has more-or-less “lifted hundreds of millions of people out of poverty and created vast consumer markets for U.S. goods and services.” But this might not be as attractive as it looks since there is the fear that an excess of money moving into developing economies is actually leading to an escalation in commodity prices.
Leading the transformation is China, an economic backwater three decades ago that last year replaced Japan as the world’s second-biggest economy. Japan, after more than a decade of stagnation, is struggling again in the aftermath of the earthquake, tsunami and nuclear disaster that struck earlier this month.
So it’s never all that clear-cut. The lesson we can learn from what is going on in today’s world economic and financial crisis recovery is one step at a time. Go slow and don’t rush to make grand gestures in the global economic recovery.
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