Sunday, August 7, 2016

CNBC - Investors to Central Banks - We aren't listening anymore

CNBC runs this article which says that central banks around the world including the US Federal Reserve are losing credibility with investors on a number of  fronts. Below are a few excerpts from the article and then some added comments.


"Japan's failure to stimulate much with its latest stimulus serves as a reminder of how few tools global policymakers have left to drive growth."

. . . .

"Japan has tried this literally dozens of times over the past quarter century, most often with the same results — perhaps a momentary bounce in activity that ultimately leads back to the same dreary growth pace. Despite all the stimulus, the economy has grown by barely 1 percent a year."

. . . . 

"In the U.S., a variety of stimulus packages over the years also have failed to achieve exceptional results. The 2009 spending package of $830 billion, seven years of near-zero interest rates and about $3.7 trillion in money-printing — called quantitative easing — resulted in an economy that has yet to register a calendar-year gain above 3 percent since the financial crisis.
The Fed now finds itself with a credibility problem in which investors not only doubt its ability to goose the economy; there are also questions about the veracity of policy statements and forecasting acumen, as well as doubts about whether the central bank will be able to act should an unexpected crisis hit."

My added comments: Here again we have serious questions being raised in a mainstream financial media article about central bank credibility. We should keep this in mind as it relates to Jim Rickards forecast that when the next big crisis arrives that the US Fed will not be able to deal with it. Notice the last sentence in the excerpt above. It sounds similar to what Jim Rickards has said. Jim goes on to predict that this will lead to a more prominent role for the SDR at the IMF in the next big crisis. When you follow these events and articles over time, it is possible to connect these kinds of dots more easily. 

Added notes: We just published this article where highly respected Central Bank expert Robert Pringle said he thinks current monetary policies are immoral. Recently BIS Chief Economist Claudio Borio was co-author of a BIS working paper that states in its Conclusion section:

. . .  "Unconventional monetary policy measures, in our view, are likely to be subject to diminishing returns. The balance between benefits and costs tends to worsen the longer they stay in place. Exit difficulties and political economy problems loom large. Short-term gain may well give way to longer-term pain. As the central bank’s policy room for manoeuvre narrows, so does its ability to deal with the next recession, which will inevitably come. The overall pressure to rely on increasingly experimental, at best highly unpredictable, at worst dangerous, measures may at some point become too strong. Ultimately, central banks’ credibility and legitimacy could come into question."  

Bottom line: This article and these significant comments by people like Robert Pringle and Claudio Borio  are supportive of the Jim Rickards forecast questioning if the Fed will be able to deal with the next major financial crisis if we get one. 

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