Zak Mir and Mike Ingram are joined by Marcus Ashworth – Head of fixed income at Espirito Santo Investment Bank – to discuss how government intervention from China and Japan are damaging their economies, and if the West are at risk of following suit.
Printing money is not the same as making money.
The negative cycle in Japan is now gripping China, as a return to QE does very little to stabilise the economy. With the Nikkei index in Japan seeing an 8% increase following announced cuts to corporate taxes, Ashworth points out that this benefits the corporations, but they ultimately sit on the cash and don’t recycle the benefits into the economy. Ergo this will have a negative effect in the long term. Questions still remain on how long interventions from the Asian central banks can continue to support their markets.
Will the Federal Reserve make the same mistake?
The Bank of England has said that a UK rate hike will not occur until late 2016, which alleviates some pressure on the Fed to make the move this year, but is that problematic? Ashworth believes that the Fed should have given the markets more guidance throughout the summer, as stability now would have allowed for a very necessary interest rate hike. Should they fail to commit, they run the risk of unending QE.
