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Wednesday, June 07, 2006

Governments, Central Banks & Changing Reality

As the central banks try to reverse the effects of excessive government and consumer spending, stock and bond markets are correcting themselves writes Jim Jubak. He outlines the tough decisions that central banks must make to compensate for bad government policies. Questioning whether
bankers can save the world when the Investors say no , he brings forth the issues quite well. As he sees it, the simultaneous global meltdown in stock and bond markets from Bombay to New York is a vote of no confidence in the world's central bankers. Central banks everywhere are facing huge challenges. By selling shares and bonds for most of May, investors and traders said loudly and clearly that they don't think bankers are up to the job. Highlighting that the details vary from country to country, but the problem is the same, he adds that for a decade or so, the world's central banks have made a bad bargain with governments that collect taxes and then spend the tax receipts plus borrowed funds. Rather than letting the irresponsible fiscal policies of governments from Beijing to Washington damage national economies, the central banks decided to use their control of the money supply to postpone the consequences of fiscal folly.Now, he says, the bill is coming due, and, although the central banks still think they can put off paying the bill for past behavior, investors are less and less certain. Some days, in fact, they get positively panicky. There is no other time, when all the world's central banks faced the same dilemma. The coincident timing certainly explains why all the world's financial markets are moving together in their worry right now

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