WELCOME back from the holidays. After suffering their worst month in more than three years in August, American equities again fell sharply on September 1st, along with shares in Europe and Japan. This sudden bout of turmoil owes much to doubts about the continuation of two great economic experiments. And it also reflects the aftermath of a huge philosophical change about the role that governments should play in the markets.
The first experiment is the Chinese attempt to shift their economy away from an investment- and export-led model towards one based on consumption. The Chinese are also grappling with the consequences of a debt-fuelled boom and with the effect of volatility in their property, equity and currency markets. Many investors fear they will be unable to manage this transition successfully, and the impact on other economies (a sharp fall in South Korea’s exports, disappointing second-quarter growth in Australia) is becoming clear.
Quantitative easing (QE) in the developed world is the other great experiment. Holding down bond yields may have prevented the financial crisis from turning into another Depression. But interest rates have been at rock-...
from The Economist: Finance and economics http://ift.tt/1UpfNak
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