{"id":30320,"date":"2018-01-30T08:09:00","date_gmt":"2018-01-30T13:09:00","guid":{"rendered":"http:\/\/olduvai.ca\/?p=30320"},"modified":"2018-01-30T08:09:00","modified_gmt":"2018-01-30T13:09:00","slug":"central-banks-put-a-safety-net-under-financial-markets-2","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=30320","title":{"rendered":"Central Banks Put a Safety Net Under Financial Markets"},"content":{"rendered":"<header class=\"wrapper entry-header page-header\">\n<div class=\"title-with-sep single-title\">\n<h3 class=\"entry-title\"><a href=\"http:\/\/www.cobdencentre.org\/2018\/01\/central-banks-put-a-safety-net-under-financial-markets\/\">CENTRAL BANKS PUT A SAFETY NET UNDER FINANCIAL MARKETS<\/a><\/h3>\n<\/div>\n<\/header>\n<div class=\"wrapper\">\n<div class=\"grids\">\n<div class=\"grid-8 column-1\">\n<div class=\"single-box clearfix entry-content\">\n<p>Most early business cycle indicators suggest that the global economy is pretty much roaring ahead. Production and employment are rising. Firms keep investing and show decent profits. International trade is expanding. Credit is easy to obtain. Stock prices keep moving up to ever higher levels. All seems to be well. Or does it? Unfortunately, the economic upswing shows the devil\u2019s footprints: central banks have set it in motion with their extremely low, end in some countries even negative, interest rate policy and rampant monetary expansion.<\/p>\n<p>Artificially depressed borrowing costs are fueling a \u201cboom.\u201d\u00a0Consumer loans are as cheap as never before, seducing people to increasingly spend beyond their means. Low interest rates push down companies\u2019 cost of capital, encouraging additional, and in particular risky investments \u2013 they would not have entered into under \u201cnormal\u201d interest rate conditions. Financially strained borrowers \u2013 in particular states and banks \u2013 can refinance their maturing debt load at extremely low interest rates and even take on new debt easily.<\/p>\n<p>By no means less important is the fact that central banks have effectively spread a \u201csafety net\u201d under financial markets: Investors feel assured that monetary authorities will, in case things turning sour, step in and fend off any crisis. The central banks\u2019 safety net has lowered investors\u2019 risk concern. Investors are willing to lend even to borrowers with relatively poor financial strength. Furthermore, it has suppressed risk premia in credit yields, having lowered firms\u2019 cost of debt, which encourages them to run up their leverage to increase return on equity.<\/p>\n<p>The boom stands and falls with persisting low interest rates. Higher interest rates make it increasingly difficult for borrowers to service their debt. If borrowers\u2019 credit quality deteriorates, banks reign in their loan supply, putting even more pressure on struggling debtors.<\/p>\n<\/div>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>CENTRAL BANKS PUT A SAFETY NET UNDER FINANCIAL MARKETS Most early business cycle indicators suggest that the global economy is pretty much roaring ahead. Production and employment are rising. Firms keep investing and show decent profits. International trade is expanding. Credit is easy to obtain. Stock prices keep moving up to ever higher levels. All [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[5451,124,7380,175,195,18212,1849,431,534],"class_list":["post-30320","post","type-post","status-publish","format-standard","hentry","category-economics","tag-boom-bust-cycle","tag-central-banks","tag-cobden-centre","tag-credit","tag-debt","tag-easing","tag-financial-markets","tag-interest-rates","tag-monetary-policy"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30320","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=30320"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30320\/revisions"}],"predecessor-version":[{"id":30321,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/30320\/revisions\/30321"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=30320"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=30320"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=30320"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}