Central bank stimulus can't go on forever

Money machines

Central banks have been pumping money into their respective economies around the world. But it can’t go on forever, and at some point economies will have to learn to stand on their own two feet again. It won’t be easy.

Coming out of lockdown

Countries around the world are attempting to break lockdown measures put in place to spite the coronavirus. It’s going to be a tough journey. We don’t yet fully know just how much damage has been caused by these policies – and we fear a second wave of the virus.

The UK, just yesterday – (11th May 2020) – announced a new slogan changing the ‘stay at home’ message to ‘stay alert’! The message, and new lockdown procedures became muddled, it was as much about the presentation that confused as anything else.

Europe is doing better with many countries now slowly edging out of their lockdowns. Germany can be singled out for quality leadership here.

Cornavirus Lockdown — Coronavirus Lockdown

The U.S. is unlocking states one by one. The overriding fear casting shadows over all of the attempts to get economies back on track is the fear of an uptick of the virus ‘R’ number again.

If governments go too early and push too hard too soon, they could easily create a damaging set back by allowing the virus to gain traction again. Equally, if left too late the economic damage will increase further. It’s an impossible situation. But testing, tracking and tracing is the key strategy here, and we all need to do far more. We need to get this right! Are we trying too hard too soon to get economies open again, this is the next fear to face.

South Korea’s performance managing the virus has been exemplary, but they too experienced a set-back when a new virus outbreak surfaced over the weekend. The virus is still out there no matter what we do! For now, we will all have to learn to live with it! A vaccine and a better treatment will be the ultimate game changer though.

Stimulus can’t go on forever and economies will have to re-start. We shouldn’t put more debt into the system, there is plenty already! There is no quick fix and the world economy is going to look and act very differently for some time to come.

U.S. and China

The trade war spat between the U.S and China that was all the talk just a few months ago is again back in focus.

It was reported that President Donald Trump said that he is not interested in re-opening the phase one trade deal and ordered U.S. federal retirement funds to pull-out investments in China stocks. If the tension builds we could be back to square one, and that will not be good. The EU is also reported to have concerns with China too – and the U.S. (tech tax) – and the UK (Brexit) for that matter.

Take time to fix

The uncertainties attached to ‘unlocking’ economies is becoming clear. Markets have reacted – we saw the crash in March and witnessed the partial recovery in April and May. Things won’t really get fixed until investors, traders and market makers realise the enormity of just how difficult the recovery will be, just how deep the debt is and just how far some businesses have fallen. It will be some time before economies repair.

We will likely see a reversal in markets again soon.

But what do I know, it’s just my opinion.

Trade safe. Stay safe.

Thank you for reading.