Stocks, Property, Bonds and Cryptocurrencies Face Major Falls, Australia’s Office of Financial Management CEO Warns
A senior official warned of the potential for major falls in asset markets in the coming months.
- Rob Nicholl says low interest rates and money-printing programs have driven up asset prices over the past decade
- He says their end will lead to “significant” declines in the value of stocks, property, bonds and cryptocurrencies
- Saul Eslake says concerns are ‘justified’
A prominent economist said these assets could include stocks, property, bonds, and cryptocurrencies like Bitcoin.
The Australian Office of Financial Management (AOFM) issues debt securities on behalf of the Australian government.
Simply put, it issues IOUs to Australian banks, as well as foreign banks, governments and central banks, the proceeds of which are used to finance the country’s budget deficit.
Its CEO, Rob Nicholl, has a unique view of global economic risks and the health of financial markets in general.
In a speech to economists this week, he warned that asset markets could see “significant” falls.
He said a decade of historically low interest rates and money-printing programs by central banks around the world was now being unraveled.
These programs have helped fuel a once-in-a-generation boom in the real estate, equity, and crypto markets.
“After nearly 10 years of large central bank asset purchases and the behaviors of the financial markets that have been built around it, it is hard to imagine that the unwinding, even partial, will not involve a readjustment significant in relative prices of large-scale assets,” Mr. Nicholl warned.
The main stock market index in the United States fell into bearish territory at the start of the month.
That was a drop from its all-time high of 20% or more.
The Australian equity market is in “correction” territory – a fall from its August 2021 high of 10% or more.
“In fact, we’ve already seen this in progress with a purpose,” Mr Nicholl said.
CEO’s concerns are ‘probably fair’
Former ANZ Bank chief economist Saul Eslake said the asset markets warning was warranted.
“It’s an accurate statement of the challenges facing central banks and governments,” he said.
“Central banks don’t know how [their easing policies] will complicate the rise in short-term interest rates.
“The cost of servicing debt is rising much more than expected.
“He’s probably right.”
But given the already significant falls in global stock markets and several forecasts from major banks that the average Australian property will drop 10-15% by the end of next year, can we expect volatility financial continues?
Mr. Nicholl says yes.
“How far this will go and for how long is difficult to predict, but what is likely is that it will continue to be associated with high periods of market volatility,” he said. .
Mr. Eslake said officials often have the freedom to speak out on issues immediately after a general election.
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