Central Banks Print Money But Fail To End Crisis

by John De Roe

The world’s central banks have pumped £3 trillion into the global economy since the beginning of the financial crisis in 2008. This represents the equivalent of 8pc of the world economy, according to an analysis by Fathom Consulting.

The figures will intensify fears that the extra cash flooding the system is responsible for rising stock markets, rather than any recovery in corporate health or investor confidence.

Erik Britton, a director at Fathom, compared the development to throwing lighter fuel on a barbecue. The question is, he said, “whether the coals are lit”.

The warning is the result of the extraordinary measures to prop up the financial system, which have seen central banks resort to strategies such as buying up bonds to keep the flow of money circulating. The central banks have also tried to stimulate economic activity by holding base interest rates insanely low. All that achieve was by enabling banks to borrow from government at 0.5% and by buying treasury bonds, in effect lend the money back again at 3%, was to make matters worse.

With such easy money on offer the banks had no need to take on riskier loans to businesses.

Fathom’s economists are worried that last year may have marked the high point of the global recovery. “It remains unclear how much of the equity market rally has been ‘genuine’, rather than simply a ‘mopping up’ of that extraordinary injection of liquidity,” they warned. “As that stimulus is gradually withdrawn, further gains in equity markets will be harder to achieve.”

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