In response to a slowing global economy and coronavirus fall out, one after another, central banks of developed nations have slashed interest rates.
The Reserve Bank of Australia cut its rate to a record low 0.05 percent.
The U.S. Federal Reserve slashed interest rates 50 basis points, the sharpest rate cut since the Panic of ’08.
The Bank of Canada cut its rate from 1.75 to 1.25 percent.
The Bank of England is expected to cut its rate by 0.25 percent when it meets later this month.
By dropping rates, the central banksters want to reassure equity market gamblers they have the tools to blunt the impact of the coronavirus economic panic and grease economies with cheap money to counteract the effects of the global economic slowdown and equity market meltdowns.
The Real World
The double blow of the slowdown compounded by the virus’s economic panic is likely to have long-term ripple effects through U.S. businesses that extend beyond responses to interest rates.
Corporations may well cut earnings forecasts, leading credit to tighten in an already over-borrowed market, which could worsen corporate performance and make investors continue to shy away from the stock market.
Fed chair Jerome Powell said the bank is prepared to see more corporate defaults and failures and is “thinking about what we can do, should those things happen.”
But central banks have few policy levers to pull other than changing interest rates and buying bonds, both of which most central banks are already vigorously doing.
Central banks that have instituted negative interest rates face the worst dilemmas.
Having already cut interest rates into negative numbers, the European Central Bank is searching for policy options to keep the continent’s flagging economy out of recession.
Europe’s stock markets have priced in a 75-percent chance that the ECB will cut its rate from the present -0.5 percent to -0.6 this month and cut them again later this year. Because the markets have bet on a cut, the bank’s failure to do so might drive investors out of the market.
As we have long reported in the Trends Journal, we do not believe cutting interest rates again will stem the building economic slowdown that has been exacerbated by the virus-inspired sell-off.
Also, as noted by the sharp sell-off of bank stocks, dropping interest rates deeper into negative territory will imperil the banking sector.
In addition, as we have long noted but only now being admitted by the bankster community, past rate cuts have boosted equity markets but failed to sufficiently juice economies.
Yet, the pressure for another cut is mounting daily.
Many analysts have scaled back their 2020 growth forecasts for Europe and predict the region will enter a recession before June, in part because the coronavirus has slashed tourist trade; canceled thousands of airline flights, conferences, and sports events; and factories across the continent are running out of Chinese-made parts.
German supermarkets are running out of stock as shoppers buy up disinfectant, toilet paper, canned food, and other supplies. It’s come to be known as hamsterkaufe or “hoarding like hamsters.”
TREND FORECAST: The first stages of the “Greatest Depression” have infected the global economy. Neither central banks’ monetary policies nor government fiscal policies of pumping more money into dying economies will bring them back to positive growth in the coming years.
How long will the “Greatest Depression” last?
At this time, it’s too early to forecast. As noted with the sudden outbreak of COVID-19, there are too many wild card, man-made, or made-by-nature events that can change the course of history.
What concerns us most is that, as Gerald Celente has said many times, “When all else fails, they take you to war.”
