Fortunately, economic and political generals apparently banished the terrifying international economic disaster that erupted in mid-2007. Highly accommodative monetary policies such as yield repression and money printing embraced by major central banks such as the Federal Reserve Board, European Central Bank, Bank of England, and Bank of Japan have played crucial parts in sparking and sustaining financial recovery. China’s leaders also have greatly aided the rescue from the dreadful crisis.
Has everyone equally shared the plentiful bounty provided by the economic recovery? In general, large corporations, Wall Street and its legislative and media allies, and S+P 500 “investors” have been especially enthusiastic apostles for easy money schemes.
Unfortunately, global economic growth arguably has slowed in recent months. The International Monetary Fund’s “World Economic Outlook” weathervane says worldwide GDP expanded 3.4 percent in 2014; it slips to 3.1pc in 2015 (October 2015, Table 1.1). Though the IMF predicts 2016 world growth ascends to 3.6pc, it cut its Julye 2015 predictions for both calendar 2015 and 2016 by .2pc. Low consumer price inflation arguably in part reflects mediocre growth. The IMF says consumer prices in advanced economies edge up merely .3 percent in 2015, and only 1.2pc in 2016. Compare 2014’s 1.4pc CPI rise.
World indebtedness remains lofty. Look at Japan’s colossal general government debt. Has the Greek debt quagmire been escaped, or merely masked by supposed saviors? Even in the United States, overall national indebtedness is still very high by historical standards, and America has achieved no progress on its long-run fiscal difficulties. Talk of currency wars and competitive devaluation persist. The European Central Bank, IMF, and others guides continually speak of the need for various member states to embark on significant structural reforms.
In some domains, is social unrest increasing, or at least risks of such activities? In many realms, and not only in regions with high unemployment, partisan conflicts between left and right wing parties (or other factions) seem especially contentious nowadays. The United States national scene currently offers little reason for optimism that its assorted feuding Democratic and Republican high priests genuinely will solve problems.
Interest rate, currency, stock, commodity, and other commercial marketplaces anxiously await critical upcoming decisions by the glorious Federal Reserve and other key central banks. Central banks have significant scope as to how they interpret and apply their policy mandates. To some extent, the Fed and its central banking friends perform as an additional branch of government. Given the noteworthy collective success thus far by central banks in helping the world to escape from the 2007-09 nightmare, many central banks presently seem to be more productive and flexible economic problem-solvers and guides than their political counterparts. Nevertheless, central bank viewpoints on economic phenomena (including their interrelations and consequences) are matters of opinion, not science. So as America’s Thanksgiving and the year-end holiday season nears, most risk-taking financial pilgrims and beleaguered political leaders around the globe are holding on, gratefully remembering, fervently praising, and anxiously praying for the continuance of the roughly seven years of highly accommodative monetary policies of the major central banks.
AMERICA: ADDICTED TO EASY MONEY
The Velvet Underground chant in “I’m Waiting for the Man”:
“I’m just lookin’ for a dear, dear friend of mine
I’m waiting for my man…
He’s never early, he’s always late
First thing you learn is you always gotta wait”.
The world is addicted to the sustained easy money policies and rhetoric promoted by significant central banks. Debtors are particularly fond of yield suppression and money printing. Nowadays, owners of US (and many other) stocks love low interest rates. Also, yield suppression tends to generate price gains in government (picture US and German 10 year government notes) and many corporate debt securities.
The United States is especially enamored of the highly accommodative policies espoused by the Federal Reserve (and its overseas allies). Not only has the Fed’s lax program persisted for about seven years. Underscore the fixation of marketplaces and media on potential and actual Fed statements, including forward guidance wordplay. Finally, stress how fearful they (and the Fed) are regarding the timing and consequences of a slight withdrawal of the wonderful stimulus.
In any event, the broad real trade-weighted US dollar (“TWD”; Fed H.10) will stay strong, probably achieving new highs in its current major bull move (major bottom 80.5 in July 2011). The S+P 500 probably will renew its decline from its 5/20/15 peak at 2135. If the S+P 500 manages to ascend over its 5/20/15 peak at 2135, it will not do so by much. The major bear trends in emerging marketplaces and commodities probably will remain intact, particularly if the TWD remains powerful.
FOLLOW THE LINK BELOW to download this article as a PDF file.
Treacherous Days- Waiting on Central Banks (November 10, 2015)