Fisher Investments Editorial Staff
Monetary Policy

Exits in Sight

By, 12/03/2009

Story Highlights:

  • A year after the financial crisis, global economic recovery is underway.
  • Many countries responded to the crisis by quickly and aggressively deploying monetary and fiscal stimulus.
  • By contrast, some countries were late to enact powerful stimulus and now lag their more aggressive brethren in recovery.
  • It's a positive to see countries mulling exit strategies, expecting sustained global economic recovery.

 ______________________________________________________________________________________________

A year after the onset of the financial crisis, and nearly nine months into the new bull market, global stocks are up almost 75%* and global economic recovery is underway.

Many countries responded to the crisis by quickly and aggressively deploying monetary and fiscal stimulus. Now those same countries are showing signs of stock market and economic recovery—and some are taking the first small steps towards stimulus exits. The US, for example, is testing ways to eventually withdraw some of the cash it has pumped into the economy. Australia, Norway, Israel, and Vietnam have already raised interest rates a bit. Others, like Indonesia and Brazil, have tightened reserve requirements for banks.  

India's and China's stimulus paring has been more targeted. For example, in October, on the heels of 7.9% GDP growth in Q3, India closed its Liquidity Adjustment Facility. China took steps to control the effects of excess liquidity on the real estate market. Its Banking Regulatory Commission announced in July second mortgage down payments on second homes were be 40% (up from 20%) and mortgage rates be 10% higher than the benchmark rate. Similarly, in Hong Kong required minimum down payments were raised for any home over $770,000. 

On the other hand, countries late to enact stimulus—like the UK and Japan—have (not coincidentally) lagged other countries in recovery. Perhaps they're realizing the errors of their ways. After the new political party initially attempted to rein in stimulus spending, the Japanese government has signaled it may increase monetary stimulus to help bolster the economy. And the UK doesn't look to be pulling back stimulus just yet either. 

Overall, it's encouraging to see some countries even mulling exit strategies—it shows they're optimistic their economic recoveries have legs enough to be mindful of the inflationary risks prolonged easy money may pose. But it's too early for significant tightening in most countries, and central banks have been clear about keeping stimulus in place until their economies are on firm ground. The tightening measures so far have been tiny compared to the massive stimulus supplied. Expect stimulus dollars, yen, pounds, yuan, euros, etc., to keep fueling stocks and economies for the foreseeable future. 

*MSCI World Index, Bloomberg

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.