Wednesday, November 26, 2014

Bloomberg: New 'Abnormal' Means Relying on Central Banks for Growth

This is a topic we have covered here extensively. This new Bloomberg article  simply reinforces the point. That point being that both the US economy and the global economy have failed to prove they can stand on their own feet and get reasonable growth without stimulus programs from Central Banks.  Everyone is waiting to see what happens now that the Fed has ended QE. Some quotes from this article and then a few added comments.


"The “new normal” may be new. It’s hardly normal."
"The “new abnormal” would be more apt, according to reports published this month by Ed Yardeni of Yardeni Research Inc. in New York and ING Bank NV’s Mark Cliffe in London."
"Among signs of irregularity since Pacific Investment Management Co. popularized the expression “new normal” in 2009 to describe an environment of below-average economic growth: Central banks are still deploying near-zero interest rates or quantitative easing six years after the financial crisis, yet output, inflation, business investment and wages remain mostly subpar."
"In financial markets, equities are hitting new highs as bond yields probe new lows. Even as the U.S. shows signs of strength, commodities are slumping."
"The lesson for Yardeni is that by running to the rescue every time asset prices swooned in the past two decades, central bankers’ prescriptions distorted economies."
“If a central bank moderates recessions, then speculative excesses are likely to build up much more during the booms and never get fully cleaned out,” Yardeni, a former chief economist at Deutsche Bank AG, said in a Nov. 19 report. “So each financial crisis gets progressively worse than the previous one, forcing the central bank to provide even more easy money to avert a financial meltdown.”

"Officials “are clearly concerned that a sharp fall in asset prices might derail their efforts to foster economic growth,” said Cliffe. “That leaves ample scope for policy errors and sudden investor panics.”


My added comments:

This article is almost like a summary recap of what we have covered here now for months. Even though it seems like a collapse was avoided from the first global financial crisis, officials have never been able to relax and feel like things are fixed. 

This is because all they were able to do was flood the system with money to avert collapse. As this Bloomberg article points out, this ongoing process over and over does not fix the structural problems like too much debt versus real GDP (GDP not generated from the money creation itself). Instead the article says it causes "distorted economies". It also says this leads to each new crisis getting "progressively worse than the previous one". When a new crisis does surface, the only action left to take is just even more easy money. The alternative is deflation which Central Banks fear.

We all know by instinct that this cannot go on forever. And clearly monetary officials know this too. It is why they have issued warning after warning that new asset bubbles are forming and this could lead to a new crisis even bigger than the last one.

Of course, this is exactly what people like Jim Rickards, Jim Sinclair, Peter Schiff, Nomi Prins, Marc Faber and many other well known experts are expecting. In the case of Jim Rickards, he goes on to say he thinks this next crisis will be so big that the US Fed will not be able to handle it (having already blown up its balance sheet over 4 Trillion dollars). This is where he thinks the IMF will step in with the creation of massive new amounts of SDR's to try and keep the system afloat.

Time will tell us if this is what happens or not. But it is no longer just alternative media and alternative view experts issuing warnings about this. The IMF, the BIS, and mainstream media (like this Bloomberg article) are talking about it regularly now.

This brings up one last question to think about if we do really get another huge global crisis. Those of a conspiratorial view believe all these warnings are being issued because the crisis is actually a planned and desired result. They think that officials will use the crisis to implement a new and more global system that the general public would be against if not for the crisis. Jim Rickards thinks a crisis will just be the result of poor policies and is not a planned event. And, of course, despite all the warnings, most mainstream media and public officials do not really believe another crisis will happen at all (or can be managed).

We can't possibly know here if there will be another crisis or not. If there is one, we can't possibly know if it is a planned event or not. Certainly, no one would admit that if it were. What we can do here is encourage readers to stay informed, take the threat seriously, and make whatever plans they can to be ready if another crisis does happen. Let's hope it doesn't and and a plan in mind if it does.

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