Greg Ip of WSJ argues that policy actions/indications by
the Federal Reserve have contributed significantly to the recent market
turmoil:
“When short-term
rates are around zero and thus can’t change much, the Fed relies even more on
broader financial conditions to affect growth—and has even less say in the
outcome. It is reminiscent of the 19th century when central banks were less
important or nonexistent.
“If you are a
central bank reliant on increasing risk as your method for stoking spending
you’re going to run into a major problem,” says Peter Berezin of BCA Research.
“You can only increase risk so much. And when investors pull back, they do so
in a very sharp way.”
The commodity boom
had real drivers, namely the U.S. shale-oil revolution and China. But central
banks greased the skids. Investors, seeking something better than the paltry
returns on bank deposits and Treasury bonds, threw money at emerging-market
countries and energy companies.”