International monetary policy coordination was probably the most significant outcome of the last Financial crisis of 2008.
To understand the impact the great recession had on monetary policy we need to go back in time, to a little more than a decade. Let me set the stage, it is November 2008 club-goers wasting away to the popular lyric of the day, “Heartless,” Kanye West, an appropriate theme for the mood of the time, as unemployment is skyrocketing and fears of home foreclosures permeated neighborhoods. The stock market crashed that month, Salomon Brothers had collapsed, Insurance company AIG was circling the drain, and the usual doom and gloom pundits were warning that the economy was staring down the double-barrel of a great depression.
“To understand the impact the great recession had on monetary policy we need to go back in time, to a little more than a decade”
WEALTH TRAINING COMPANY
Meanwhile, on a gloomy November day, a group of central bankers were gathering in Frankfurt, Germany, for a central banking conference.
In a nutshell, conference delegates had unanimously agreed to strengthen international monetary policy coordination
“The current financial crisis and global economic slowdown likewise have been an occasion for unprecedented international policy coordination, within Europe but also globally.
For example, in its regulatory capacity, the Federal Reserve has worked closely with regulators and supervisors from several European nations, and we are active participants in the international Financial Stability Forum and the standard-setting bodies operating under the aegis of the Ban,” wrote Chairman Ben S. Bernanke.
“Central bankers have been working closely together throughout this period of financial turmoil. I have found the opportunity to share views regularly with President Trichet and other leading central bankers at various international meetings extremely valuable. We are all in frequent contact by phone as well. Our consultations allow us to keep abreast of developments in other countries, to compare our analyses of developing trends, and to draw on each other’s experience and knowledge,” added Bernanke.
“The current financial crisis and global economic slowdown likewise have been an occasion for unprecedented international policy coordination, within Europe but also globally”
Ben S.Bernanke (Federal Reserve)
Paradoxically, international monetary policy coordination, in the wake of the 2008 crisis, resulted in the continuation of a policy that led financial markets and the global economy into a crisis
The 2008 financial crisis was a debt crisis, so international monetary policy coordination is the implementation of the same policy easing but at a global level. Put simply, central bankers are doing more of the same, creating more debt, but at a global level. The global debt clock is now approaching a record 300T USD, according to the IIF.
But for better or for worse international monetary policy coordination has so far prevented a financial meltdown and a complete economic collapse. The outcome of International monetary policy coordination is the centrally planned markets are driven by central bank liquidity.
“the Fed’s proposed tapering could be like watching paint dry” – Wealth Training Company
Taking this international monetary policy coordination piece full circle we believe the Fed’s proposed tapering could be like watching paint dry
If the PBOC fills the liquidity gap and starts easing. The managed collapse of Evergrande is being cushioned by PBOC easing.
Put simply this bull market can keep running even if the Fed tightens so long as other central banks offset with easing. International monetary policy coordination kept markets stable in 2008 and it can do it again in 2022. If, so risk on net capital flows could continue.