Central bankers are out of bullets if 1929-level markets go bust again
Bank of Canada governor Stephen Poloz says the “wobble” in the Canadian economy caused by the shocking fall in the price of oil is just about over.
But according to some analysts, a more dangerous wobble may be connected to an entirely different mineral: mercury.
And if so, central bankers will find themselves helpless to deal with the fallout.
- Bank of Canada leaves rates unchanged after “wobble”
- China exports plunge and talk of stimulus heats up
In his news conference Wednesday, it seemed the bank governor’s biggest international concern was that the U.S. economy would grow even more quickly than he expected, forcing him to raise interest rates sooner.
Considering how everyone pounced on the his recent description of the Canadian economy as “atrocious,” there is little wonder he did not warn of an impending market crash.
‘Atrocious’ growth
With growth at zero, using the term “atrocious” was no exaggeration.
However, it just shows that if a staid but influential character like Poloz reminded us that markets — especially at current elevated levels — are mercurial, it could cause some serious fallout. Others are not so shy.
A report out of the U.S. last month titled “Quicksilver Markets,” (quicksilver being an older, less frightening word for mercury), contained a far more worrying warning: that global stock markets are now hitting levels seen just before the bursting of previous major market bubbles.
“The highest market peaks (1929, 1999 and 2007) either surpassed or approached this two-sigma level,” says the report. “Each of these peaks was followed by a sharp decline in stock prices and adverse consequences for the real economy.”
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