If some investors think time is cycling back to 2008 instead of marching forward, it’s understandable. With Europe’s debt problems, credit spreads have soared upwards. Stocks, rallying on Monday after Europe announced a €750 billion (around Rs44 trillion) rescue, are yet again living and dying by the size of bailouts.
Another back flip came late Sunday when the US Federal Reserve reopened currency swap lines with other central banks. We saw this in late 2008 when regulators, worried that fewer dollars were being lent worldwide, started or increased arrangements to exchange other currencies into dollars.
This newspaper has noted that the new European problems are nothing like Lehman. Yet, what is of concern is that this crisis interrupts the recovery from the last one.
Earlier this year, the Fed had begun winding down some of the emergency facilities it opened in 2007-08. But with the European Central Bank forced to stay generous too, the easy money status quo now doesn’t seem to be budging. Emerging markets, flush with liquidity, have to ask when the clock will move ahead to normal mode—if there even is one.