To Stimulate or Not? 4 Aug 2012
- Monetary Policy , To Tighten or Not? Business
The debt mountain facing many parts of Europe has helped to significantly reduce demand for goods and services and this in turn has now caused a contagion effect to spread too many other parts of the world. The United States is no exception to this. Europe has been the direct cause of the general slowness of the US economy over the past year. Prior to this the US had made sound progress in gradually developing their economies return to health.
Europe has now seemingly started to realize that the policies they have been pursuing over the last 3 years have been inadequate in both design and scale. As a consequence the ECB are now seemingly ready to be more aggressive in providing stimulus, and the only question now is by what means. If the ECB fails to live up to its promises, and that is not without precedent, then it is likely that over the next couple of years the major market players around the world, being banks and hedge funds, may well start to sideline the single currency leading it to self destruction. So as I type this we await the ECB decision with baited breath.
Across the Atlantic, the Feds are considering a possible move towards QE3 or quantitive easing part 3, (modern day money printing). I feel this may have been forced upon them by virtue of the fact that Europe has been such a poor performer. The problem that the Feds face is that if they print now, then they are ensuring higher levels of inflation 2 or 3 years from now. In the more immediate sense it would likely cause commodity price inflation. It is fair to say that they are stuck between a rock and a hard place. Their decision is a far more difficult one than that faced by their European counterparts.
In conclusion it is almost certain that if the Central bank move or signal a future move towards QE, then currencies like the NZD and AUD will only get stronger. Therefore anyone considering moving money into New Zealand or Australia, should give consideration to doing it sooner rather than later.
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