German FinMin Warns CBs about Asset Bubbles

June 23, 2014 Share Print 0

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.

via Mainichi

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.