The Era of "Growth" is Over… Next Up, the Era of "Inflation"

A strange shift has taken place amongst the global Central Banks… though no one in the mainstream media has noticed it.


That shift has been from “growth” to “inflation.”


From the depths of the Crisis in 2009 until mid-2012, Central Banks were considered the “saviors” of the financial system and Capitalism. The first wave of their interventions (2009-2010) was meant to stop the collapse. The second wave (2010-2012) was meant to get us back on track towards global growth.


But, a funny thing happened in 2012. At that point QE and other extraordinary measures were shown to be what they were: all about rigging the stock market. After all, the first $8 trillion spent by Central Banks had failed to generate any sustained GDP growth or jobs.


So what did the Central Banks do? They stopped talking about growth and began talking about “inflation.”


It started in Japan, where after 30 years of economic flat lining, “economic growth” had become a mythic figure akin to Unicorns. During this period, an entire generation of bureaucrats and economists had grown from young men to the pillars of the establishment without seeing “growth,” so they didn’t even bother mentioning it in their forecasts.  Their money printing efforts were about hitting certain “inflation” forecasts and nothing more.


When Shinzo Abe, the Japanese prime minister, took office in December 2012 he made clear his intention to break Japan’s deflation. The Bank of Japan, under a new governor, Haruhiko Kuroda, was ordered to pursue a goal of 2 per cent inflation. But after impressive early progress, the economy slowed, partly dragged down by an increase in sales taxes. Voices can now be heard doubting whether Mr Kuroda can succeed in putting the country back on to a path of rising prices


This type of thinking has become so prevalent in the minds of Japanese Central Bankers, that Haruhiko Kuroda actually boosted Japan’s QE program a few weeks ago simply so that the Bank of Japan’s adjusted forecasts would meet his inflation goals.


From any rational perspective, this is complete madness. But since no one got canned and no riots broke out, this new approach has been seen as a success for Central Banks.


Small wonder then that ECB President Mario Draghi has removed the word “growth” from his vocabulary and is instead hoping to create “inflation”:


European Central Bank President Mario Draghi on Wednesday said the central bank is open to embarking on new measures should its current package of instruments fail to increase inflation.


The ECB has already decided to purchase covered bonds and asset-backed securities, and it is lending funds to banks at very low interest rates at four-year maturities. It expects these measures will help boost its balance sheet back to levels...


This change in language tells us point blank that Central Bankers are aware they cannot create growth. After all, they’ve spent $10 trillion and all they’ve created is the weakest recovery on record.


And so, they’re not even bothering to engage in the farce of talking about jobs or GDP growth. Instead, they’re simply going to focus on inflation by printing money.


It’s now a race to the bottom from a currency perspective. The outcome will make 2008 look like a joke.


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Phoenix Capital Research