By Nickolai Hubble, Daily Reckoning.com.au:
Global markets took off on Thursday and Australia duly followed in Friday’s trade. Perhaps because economic growth returned to Europe? Or maybe America discovered the new internet? Nope, all it took was a carefully worded comment from the European Central Bank’s President:
‘Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate.’
Translated, that means, ‘We’re going to do something.’
But central banks were designed to prevent financial crises, not economic ones. There’s a crucial difference. One that is coming to the fore right now all around the world. Because world economies are slowing again. It’s not a shock this time around. It wasn’t really a shock in 2008 either, if you knew where to look. But this time around, even the mainstream indicators are flashing red.
We won’t go into what those indicators are. Mostly because they are a bit dodgy anyway. Instead let’s focus on whether the same duct tape fixes that worked last time will work again this time. Can a recession and financial crisis be averted around the world? Or will markets melt down even worse than last time?