End of monetary illusions shocking markets

The rising U$ is wrecking havoc on China and other developing economies which pegged themselves to the U$ for trade purposes over the past decade. While the dollar weakened this helped those countries sell goods, but as the dollar strengthens it is making their exports more expensive and less attractive as demand is contracting all over the world.

Michael Darda, chief economist at MKM Partners, discusses the link between monetary policy and global market volatility and concerns over Chinese debt. Here is a direct video link.

The same easy money policies drove debt growth and over-spending all over the globe between 2003 and 2015. The end of that era means a hard reversal everywhere all at once.  See The end of monetary illusions shocks markets:

 Central bankers are no longer the circuit breakers for financial markets.

Monetary-policy makers, market saviors the past decade through the promise of interest-rate reductions or asset purchases, now lack the space to cut further or buy more. Even those willing to intensify their efforts increasingly doubt the potency of such policies.

That’s leaving investors having to cope alone with shocks such as this week’s rout in China or when economic data disappoint, magnifying the impact of such events.

“The monetary illusion is drawing to a close,” said Didier Saint Georges, a member of the investment committee at Carmignac Gestion SA, an asset-management company. “With central banks becoming increasingly restricted in their stimulus policies, 2016 is likely to be the year when the markets awaken to economic reality.”

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