World Central Banks Worried
Three central banks "eased"within one hour of each other on July 5th. The Fed didn't do anything, but the Fed already has rates at 0.25% (25 bps) which is just about zero. The central banks of the European Union, China and the UK (the Bank of England) were the three banks that took action. Of the three, the BOE didn't actually cut rates, but they did increase their QE program (which is basically "money printing.")
John Maynard Keynes thought that central banks should cut rates to stimulate the economy. He believed that rates should be cut to zero in order to create economic activity. He wasn't all that clear on exactly how that would work, but that's what he espoused.
Central banks around the world follow Keynesian economic ideas. So they're thinking that the various economies around the world aren't peppy enough. In fact, they believe they are slowing. Hence the rate cuts.
So many of us accept this sort of thinking that hardly anyone bats an eye. But you should question this sort of thinking. The easiest way to look at this issue is simply to remind yourself that central banks have been cutting rates and it's not working.
Of course, Keynes might say that, even though they've been cutting rates, they still haven't cut them to zero.
So I guess we should wait until all these central banks cut rates to zero. Then we'll see whether economies around the world get peppy or not.
Then again, if rates are cut to zero and economies around the world still languish - or, worse, keep slowing - then what? Could it be that Keynes didn't really know he was talking about? And, by inference, could it be that, therefore, the central banks around the world really don't know whether these rate cuts will work - meaning they really don't know what they're doing?
In any case, you can use your reason to draw these conclusions, and unless evidence proves you wrong, have confidence in your reasoning here. It only makes sense to think along these lines, doesn't it?
Interesting Development
As a result of this coordinated action, you might think that world markets would rejoice. But they didn't. A Wall Street Journal report discusses this. (Click here to read the report.)
The WSJ report reinforces the fact that Central Banks around the world follow Keynesian theory. They beleive that "easing" will stimulate markets and the economy. The markets apparently haven't been stimulated by their Keynesian actions. Now let's see if the economies of the world respond.
John Maynard Keynes thought that central banks should cut rates to stimulate the economy. He believed that rates should be cut to zero in order to create economic activity. He wasn't all that clear on exactly how that would work, but that's what he espoused.
Central banks around the world follow Keynesian economic ideas. So they're thinking that the various economies around the world aren't peppy enough. In fact, they believe they are slowing. Hence the rate cuts.
So many of us accept this sort of thinking that hardly anyone bats an eye. But you should question this sort of thinking. The easiest way to look at this issue is simply to remind yourself that central banks have been cutting rates and it's not working.
Of course, Keynes might say that, even though they've been cutting rates, they still haven't cut them to zero.
So I guess we should wait until all these central banks cut rates to zero. Then we'll see whether economies around the world get peppy or not.
Then again, if rates are cut to zero and economies around the world still languish - or, worse, keep slowing - then what? Could it be that Keynes didn't really know he was talking about? And, by inference, could it be that, therefore, the central banks around the world really don't know whether these rate cuts will work - meaning they really don't know what they're doing?
In any case, you can use your reason to draw these conclusions, and unless evidence proves you wrong, have confidence in your reasoning here. It only makes sense to think along these lines, doesn't it?
Interesting Development
As a result of this coordinated action, you might think that world markets would rejoice. But they didn't. A Wall Street Journal report discusses this. (Click here to read the report.)
The WSJ report reinforces the fact that Central Banks around the world follow Keynesian theory. They beleive that "easing" will stimulate markets and the economy. The markets apparently haven't been stimulated by their Keynesian actions. Now let's see if the economies of the world respond.
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