Sovereigns have been collectively fighting the battle of market confidence and are hoping to ultimately win the greater war threatening world economic growth. They have been engaged in direct intervention as we know in the credit and currency markets for some time but now appear to have entered into direct intervention into equity markets around the world where needed. Having clearly created an economic environment which Adam Smith did not envision, i.e, where the main economic market drivers come from a circle countries printing money because their own economies cannot support economic growth. This strategy of asset subsidization based on injecting massive liquidity into the markets in the hope that future growth will be able to pay for the radical costs is certainly dangerous.
The problem if this particular strategy fails to deliver the broad economic growth needed to eventually pay back the gambit is not clear but probably not good. Supporting assets may lead to a greater economic divide between those whose assets are being protected and those of the much broader population whose assets really are not. Social unrest could enlist a larger segment of the world seeking to reject current approaches. If Europe delivers on its propensity to cycle into world disasters, they will ultimately fail at pandering to the markets and panic would prevail.
One of the lessons learned in trading early on is that spreading into an additional position when the original positions is a loser almost always results in a greater loss than if one had just taken the loss in the first place. Unfortunately, real fixes could come from a rather unpleasant round of economic panics and a debt jubilee a gigantic proportions. But right now, sovereigns in the thick of a defensive battle whose end is not clear.
