“Is the US Fed and the ECB running global monetary policy, or are we in the hands of those with little or no independence from political, in some cases undemocratic, government?”

This is Henry’s editor’s question of the week, prompted by The Economist. The answer may surprise you, as it did Henry.

Then we get to another important question: “What is happening in global markets?” After one stellar and one OK night on Wall Street, and a stunning bounce in Asia yesterday, is this the end of the correction, or is there more pain to come?

Stewart Wilson, CEO of the Australian Shareholders’ Association puts the happy case in The Oz today:

GLOBAL markets are experiencing above-average volatility. Big deal. Don’t be fooled into thinking that the market is full of panic-stricken investors worried that they may lose everything. This is despite both domestic and international media networks doing their level best to whip the story into a frenzy.

Last week the market had fallen enough to be technically termed a “correction”, which is sufficient for some market commentators to attempt to drum up a little scaremongering. Descriptions such as “global financial meltdown” or “market in freefall” are dramatic, yet hardly reflect the mood of typical investors, as demonstrated by yesterday’s gain of almost 4 per cent.

H’s Lex starting 26/6 warned of impending correction:

History has always showed Ponzi Schemes and borrowing too much short term to invest long term led to financial ruin. Friday’s Wall Street action was a ‘dead cat bounce’… H’s Lex sees 15-25% US Dow/S&P correction and with a Herculean Fed, other central banks’ effort it is only 50-50 they stop at it 25% …”

And, please note, Lex is an optimist at heart.

However, Lex cannot avoid pointing out that “all the recent market pain has occurred while geopolitical backdrop has been calm … how long before a geopolitical problem adds to the market woes?”

The basic fact of strong global growth is still in place despite the severe doubts about US growth and the likely further fallout from the US “Subprime” crisis.

The effects of emerging economy central banks on global activity and inflation cannot be ignored. If emerging nations need to go through the well-worn path of inflation due to lax monetary policy (ultimately run by politicians), this will trigger a bear market about as reliably as would a serious geopolitical accident.

All this suggests to Henry that while the current market pressures are far from over, when uncertainty reduces there will be room for another leg up in global markets. Bull markets never last for ever and each surge and its accompanying “correction” brings us closer to the day when retiring baby boomers will face the reality of nest eggs declining in value rather than growing apparently inexorably.

This is when the intergenerational pressures will begin to build.

Read more at Henry Thornton