Germany’s finance minister on Monday issued a stark warning that global central banks’ efforts to inject more liquidity into the financial system are feeding asset bubbles — which could eventually burst and cause the next crisis.
Wolfgang Schaeuble also rejected a recommendation by the International Monetary Fund that the European Central Bank should resort to large-scale bond purchases — of the kind the Federal Reserve is making — to help growth and protect the 18-nation eurozone from deflation.
“We don’t have too little liquidity in financial markets but rather too much,” Schaeuble said after a meeting of European finance ministers in Luxembourg.
“All experience of economic history tells us that such situations lead to bubbles,” he added, noting that the low interest rates in developed economies are pushing investors into riskier markets including real estate.
Germany has long been aggressive on combating inflation and cautious about big stimulus programs.
The IMF on Thursday recommended that the ECB should make large-scale purchases of assets such as bonds if “inflation remains stubbornly low.”
The eurozone’s inflation rate stands at 0.5 percent, well below the ECB target of 2 percent. A deflationary slump, in which prices fall persistently, would threaten to choke economic growth.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.