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..Central Banks around the world will have to tighten credit and raise rates....maybe as early as Q2-2010
The sell off in Asian and US equities overnight was apparently triggered by China's Central Bank's decision to tighten bank credit and to reduce credit growth from more than 30% in 2009 to a more realsitic level of 16% in 2010. If you remove the global financial crisis from the picture, it is normal for credit growth to be about 2 times GDP growth so - credit growth of 16% in China is reasonable and on the positive side probably reflects a gradual return to normalcy as crisis concerns start to ease.
Putting China aside, all Central Banks around the world need to address the issue of excessive credit and near zero interest rates. While these have averted a collapse of the global financial system, they are not sustainable for prolonged periods. We already see severe stress in national balance sheets in Europe with most economies there having national debt to GDP near or exceeding 80% (this is typical of developing not developed economies). Read more...
[caption id="attachment_2999" align="alignright" width="150" caption="Photo by Mirko Macari"][/caption]
..Central Banks around the world will have to tighten credit and raise rates....maybe as early as Q2-2010
The sell off in Asian and US equities overnight was apparently triggered by China's Central Bank's decision to tighten bank credit and to reduce credit growth from more than 30% in 2009 to a more realsitic level of 16% in 2010. If you remove the global financial crisis from the picture, it is normal for credit growth to be about 2 times GDP growth so - credit growth of 16% in China is reasonable and on the positive side probably reflects a gradual return to normalcy as crisis concerns start to ease.
Putting China aside, all Central Banks around the world need to address the issue of excessive credit and near zero interest rates. While these have averted a collapse of the global financial system, they are not sustainable for prolonged periods. We already see severe stress in national balance sheets in Europe with most economies there having national debt to GDP near or exceeding 80% (this is typical of developing not developed economies). Read more...
[/caption]
..Central Banks around the world will have to tighten credit and raise rates....maybe as early as Q2-2010
The sell off in Asian and US equities overnight was apparently triggered by China's Central Bank's decision to tighten bank credit and to reduce credit growth from more than 30% in 2009 to a more realsitic level of 16% in 2010. If you remove the global financial crisis from the picture, it is normal for credit growth to be about 2 times GDP growth so - credit growth of 16% in China is reasonable and on the positive side probably reflects a gradual return to normalcy as crisis concerns start to ease.
Putting China aside, all Central Banks around the world need to address the issue of excessive credit and near zero interest rates. While these have averted a collapse of the global financial system, they are not sustainable for prolonged periods. We already see severe stress in national balance sheets in Europe with most economies there having national debt to GDP near or exceeding 80% (this is typical of developing not developed economies). Read more...
