China has cut its main interest rate by 0.25 percentage points after two days of stock market turmoil.
It’s the fifth interest rate cut since November.
The People’s Bank of China also cut banks’ reserve requirement ratio by 0.5 percentage points.
The Latin phrase Deus Ex Machina, literally “God from the Machine”, comes to us from the dramatic stage of antiquity.
The playwrights of Ancient Greece and Rome would create elaborate conflicts for their characters to endure on stage and then get stuck toward the end when their protagonists had been thoroughly painted into a corner, with no way out of the play’s dilemma.
But then – Smoke! Lights! A rousing chorus!
All of a sudden, a trap door would open up or a platform on a rope would drop down from the eaves. A god, descending from the heavens or Mt Olympus, would appear in full regalia – flowing white robes, a garland of leaves atop his head. The deity would wave his staff or her wand and the problem would go away. The play’s beloved characters were saved by divine intervention yet again. The crowd would roar its approval.
Everyone loves a happy ending, even if it literally required a god from the machine to spring out of nowhere and save a hopeless plot impasse.
In China, they don’t use the term Deus Ex Machina, but they do have their own version. It’s 解围, pronounced Jiěwéi. Translated into English, it means “rescue from a siege” or “help out of an awkward predicament.”
This morning, the Peoples Bank of China executed their latest Jiěwéi in response to the trillions of dollars in additional losses their 90 million investors have endured in the last few weeks. The interest rate cut is happening in concert with a retreat from attempting direct intervention in the form of outright stock and ETF purchasing in the markets, which clearly hasn’t worked.
But a rate cut and a reserve requirement cut – that might be just enough to save the day for now. US theatergoers have greeted it enthusiastically enough; as of this writing, the S&P 500 looks to open more than 4% higher than last night’s close.