China Is Latest Central Bank to Embrace Easy Money

by Sean Brodrick on November 30, 2011

Reuters tells us that China’s central bank cut the reserve requirement ratio for its banks on Wednesday by 50 basis points for the first time in nearly three years to ease credit strains and shore up activity in the world’s second-largest economy.

This may be a pre-emptive strike by China’s central bank because  the economy has weakened quite bit and that the official PMI reading does not look very good.

And Bloomberg reports that Central banks across five continents are undertaking the broadest reduction in borrowing costs since 2009.  From the story:

The U.S., the U.K. and nine other nations, along with the European Central Bank, have bolstered monetary stimulus in the past three months. Six more countries, including Mexico and Sweden, probably will cut benchmark interest rates by the end of March.

Bloomberg reports that JP Morgan forecast monetary easing will push the average worldwide central bank interest rate, weighted for gross domestic product, to 1.79 percent by next June from 2.16 percent in September, the largest drop in two years.

And just now — just as I was writing this — CNBC reports that the Fed, ECB, and central banks of England Japan, Switzerland and Canada announced a joint action to boost liquidity, lowering prices on existing U.S. dollar liquidity swap arrangements.

How do you like trading in an environment where the Central Banks of the world push the market around like a schoolyard bully stealing the little kid’s lunch money?  Personally, it’s not one of my favorite things.

On the plus side, it’s all good for gold. And since Europe has delayed any major decisions on sovereign debt for the next 10 days, we may be looking at a 10-day rally, more or less. Kick that can down the road!

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