The government may have been too busy recently dealing with a major bribery scandal to pay close attention to the latest actions taken by three of the world’s major central banks, but it does not take a genius to figure out how serious the current global economic crisis is and what implications it may have for Taiwan’s economy.
On Thursday, within 45 minutes of each other, central banks in the UK, China and Europe moved separately to offer further monetary stimulus to improve their domestic economic environments. These developments came only two weeks after the US Federal Reserve decided to extend its bond-buying program to boost borrowing and investment.
In a nutshell, all of these moves suggest that negative global conditions are either showing little sign of abating or are worsening faster than expected. The latest actions by the three central banks last week followed coordinated action taken by six major central banks in the US, Europe, Canada, the UK, Japan and Switzerland late last year to provide liquidity for other currencies in order to reassure markets about the eurozone economy and the health of the global banking sector.
However, this time is somewhat different from before because, first, no one knows if the moves were coordinated in advance and, secondly, policymakers in these countries wanted simply to stimulate their domestic economies rather than to keep the eurozone crisis at bay, as seen previously. An important question that needs to be asked is: Can the latest central bank moves achieve this goal?
The answer to this question is probably “No.”
While the latest measures show that these central banks are recognizing similar problems in their economies, they only serve to delay their economies from further erosion, in that they do not provide any fundamental solutions to their economic woes — which are not about their liquidity conditions, but their weak levels of aggregate demand in terms of slowing consumer spending and softening investment activities.
That most Asian stock markets fell on Friday is an indication that people are continuing to worry about the global economy, as well as their domestic economic situations, rather than their lack of confidence in the action of the central banks. Even IMF Managing Director Christine Lagarde warned on Friday that the global situation could worsen and the fund would have to cut its global growth outlook later this month.
People are now waiting to see if the US central bank will provide a new monetary policy stimulus in the near term. While the latest US job data released on Friday gave no reason for the Federal Reserve to undertake more easing measures soon, a more important point at this stage is to consider if the US central bank actually has any more stimulus measures that can accomplish anything, given the failure of its previous measures in aiding economic growth.
Whatever the future developments are, the troubled eurozone is dragging down the global economy and has prompted countries around the world to ease monetary policy to deal with their problems.
However, emerging markets including Taiwan should be worried about the potential capital inflows under these loose global monetary conditions and take pre-emptive measures to prevent asset bubbles from forming, which the Bank for International Settlements warned in its annual report last month could generate a new global financial crisis.