Trading idea: Time for plan B? Central banks to make it harder to access credit

Market Talk

Strong banks should prevail, weak banks maybe not. In the meantime, increased volatility should help brokers, as traders move in on new opportunities

Current volatility drivers:

• Weak banks collapsing
• Central banks desire to win the inflation fight at all cost
• Increasing US political risk with just 590 days remaining till the next US presidential election

Need a loan? Good luck. Bank says no. Economics 101:

• When central banks need to stimulate economic growth and create jobs, they lower interest rates
• The side effect is higher inflation

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A true conversation between the people (“workers”) , employers , central banks and government:

Workers: Congratulations to the central bank for lowering the unemployment rate to 53 year lows. We all have jobs and we love to buy stuff.

Central Bank: Wow we did such a good job creating maximum employment , the people are now complaining because prices are increasing.

Workers: Boo to the central banks for creating more jobs, inflation makes it difficult for us to buy more stuff.

Employer: My business is amazing. Thank you central bank, but my employees are demanding more money. Ok, I’ll raise my prices because my customers have more money to spend. Now I’ll give my employees a bit of a raise.

Workers: Thanks boss. I think I’ll buy a house now, and borrow money from the bank to fill my new house with stuff.

Government: The central bank needs to act, the people are unhappy that stuff is costing more and we are worried about civil unrest if inflation gets out of hand. Price stability is the central bank's job. Right?

Central bank: Correct. Price stability is our job. Have no fear Mr. Government we know precisely what to do. Guys quick we need a board meeting to vote on increasing interest rates, we lost price stability.

Government: Guys inflation is still too high. Can you do anything more?

Central bank: Of course we can, but we could break a few banks, increase unemployment and a few people may lose their houses.

Government: is there any other way?

Central bank: No.

Government: Just do it quick, we have elections in 600 days

Today’s economic events