Why liquidity and interest rates are not the answer – livemint.com
The European Central Bank, the Bank of England and the Swiss National Bank delivered sharp rate cuts on Wednesday: 50, 150 and 50 basis points, respectively. However, central bankers are still in danger of succumbing to the “Canute syndrome”—failing to keep the receding tide of bank funding from leaving the economy high and dry.
Overnight policy rates—3.25% in the euro zone, 3% in the UK and 2% in Switzerland—are low by recent standards. But, the US is at 1%. There will be more cuts in Europe if the financial and economic situation warrants. That looks increasingly likely.
Who will they give the money to …
The manufacturing sector has (hundreds of) billions in debt. They cannot take any more debt. The world is suffering from global overcapacity in manufacturing. So, no go!
The consumer is lip-deep in debt. They cannot take any more debt. Wages are under downward pressure – due to competition from Asian and South American workers. The road sign says, ‘Stop. Diversion ahead.’
The services sector is already over priced and suffers from stagnation. So, who can these banks lend money to. Interest rates and liquidity are not the reasons for this crisis – but rather a case of acute indigestion.
Lower food prices or increased food supply will not help a patient with symptoms of indigestion due to over eating.