"No Taper" Versus "No Pain, No Gain"
Submitted by Clive Hale via A View From The Bridge blog,
The words of central bankers have for a very long time been poured over by those believing their utterances to have mystic qualities, but we now live in an era where their fallibility is coming into question. The Governor of the San Francisco Fed has written a paper debunking the effectiveness of quantitative easing where monetary policy is "uncertain", a state of affairs that has been with us since QE was started and reinforced by Bernanke's two recent press conferences. To taper or not to taper; will he or won't he? Your guess is as good as mine.
In Europe, Draghi has been given what in a true democracy would be deemed unconstitutional powers, but we are talking Europe here where the rules are made up after the event and then broken by those with the power to do so; a strategy long employed by France. Until the German elections are out of the way in September there will be more muddle through in southern Med economies as “Geli” doesn't want her electorate to know that she will have to spend more of their money bailing out a long line of Greek, Portuguese, Spanish, Italian and probably French banks, lest the precious euro falls flat on its face. Some of us believe it already has and only heroic denial, on a scale that makes religious fervour look like belief in Santa Claus, is keeping it alive.
Shinzo Abe now has a majority in both Houses of Parliament in Japan so he has free reign over economic policy until 2016 which should be plenty enough time to put the final nail in the Japanese economic miracle. Their latest foray into QE dwarfs the Feds efforts and will almost certainly have a similar effect; an asset bubble, stubbornly low growth and a debauched currency; join the club!
“No pain no gain”, is what my fitness trainer tells me with irritating relish and frequency, but you know what? He's right! So what should our central banks and politicians be doing? Debt is the problem so deleveraging has to be the answer. This has been going on for some time, but is a very slow process and it will be a long time before growth picks up to levels that will inject some serious pace into the global economy.
To short circuit the process requires massive debt write offs, which requires equally massive funding and in turn means wealth redistribution from those who have got it to those that don't. This is why the politicians wont contemplate the pain as it is a policy that won't get the backing of their sponsors, i.e. the tiny percentage among us who have not only "got it", but have got nearly all of it. They truly believe that the citizens are “revolting”; believe me, unless action is taken now, one day soon they will be.
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