What is fuelling global markets?
US FED Balance Sheet: Major Spike from March 2020, onwards.
What is Central Bank’s (Like RBI) Balance Sheet?A central bank’s balance sheet summarizes its financial position and is made up of assets, liabilities, and equity. Assets equal liabilities plus equity.
Why Central Banks are increasing their Balance Sheet?
Simple. They are increasing their balance sheet, by pumping More Money into the economy, to keep the economy afloat during this crisis.
In fact, US Fed Reserve has been doing it since the 2008 Global Financial crisis. Their balance sheet size doubled from USD 1 Trillion (approx.) to over $2 Trillion in 2008. And now it stands at $ 7 trillion.
However, US GDP has also grown from $14 Trillion to $ 21 Trillion. From 2008 to 2019.
So, what made the Markets rise? The excess money pumped into the economy will help US businesses and found their way into US share Markets. Dow Jones is just 7% away from its Feb 2020 peak, beginning June 2020.
Indian Markets: During a crisis, we tend to move in lockstep with developed economies like the US. Hence there is a surge in Indian markets as well.
However, at $0.5 Trillion (RBI Balance Sheet) India is just 16% of its 2019 GDP of $3.2 Trillion. US Fed’s balance sheet of $7.1 stands at over 33% of its $21 Trillion GDP. It must be noted that if a larger balance sheet gets growth to the economy, then it is sustainable, the way the US did in 2008 onwards and grew from GDP $14 trillion to $21 trillion in 2019. A 50% growth in 10 years. Good from a developed world standard.
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