The world is partying hard on free money, but beware the hangover


What’s going on? Yes, there’s a surge of confidence that COVID can be managed now, and that new vistas of growth await. But it’s more than that. Simply, it’s free money. Lots and lots of it. The word “unprecedented” comes to mind.

Central banks have cut interest rates to zero – or lower – and pumped a fresh $US8 trillion into global liquidity since the pandemic was declared last year, and that’s continuing to swell at an annual rate of about 30 per cent, according to the analysts at Cross Border Capital in London. Private lenders have added another $US20 trillion or so, they say. The total new pandemic-powered liquidity of $US28 trillion is equal to almost one-third of global GDP. A lot, in other words. “The importance of liquidity in driving asset prices higher is unambiguous.”

Illustration: Dionne GainCredit:SMH

On top of that comes government stimulus spending. Worldwide, governments committed emergency pandemic stimulus spending…

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