Wednesday and yesterday’s falls in stock markets around the world are worrying. The fall followed Ben Bernanke’s prediction that the Federal Reserve would ease its bond buying programme.
It seems stock markets can only grow if central banks intervene heavily or print money. This is unsustainable. The private sector must stand or fall on its own merits not through central bank largesse.
This market instability reflects the reality that the underlying weaknesses have not been resolved. Global imbalances and over leveraged banks remain. Rising government debt that is driving austerity programmes continue to choke off demand. This all makes pretty depressing reading.
If you believe in the efficiency of markets, and we guess those who work in stock markets do, the markets need to find their natural level. This will hurt. This will hurt ordinary investors but is a necessary correction.
In the meantime the government should be using its ability to borrow and tax to stimulate sustainable growth from new clean technologies, foremost amongst them renewable energy.
If we are to weather future economic storms from resource scarcity, commodity price volatility and out declining share of global GDP, this needs to be a central plank of government and opposition policy and strategy.