XIAM007

Making Unique Observations in a Very Cluttered World

Sunday, 23 June 2013

The Bank Of International Settlements Warns The Monetary Kool-Aid Party Is Over -


The Bank Of International Settlements Warns The Monetary Kool-Aid Party Is Over - 



When a month ago the Central Banks' Central Bank, aka the Bank of International Settlements (or BIS) in Basel where the MIT central-planning braintrust meets every few months to decide the fate of the world, warned that the Fed-induced collateral shortage is distorting the markets, few paid attention. That the implication behind said warning was that QE can not continue at the current pace, was just as lost. A few short weeks later following the biggest plunge in markets since 2011 in the aftermath of Bernanke's taper tantrum, some are finally willing to listen.

However, they will certainly not like what the BIS just released as a follow up, both in the form of the BIS' 83rd Annual Report, and the speech by Jaime Caruana to commemorate said annual meeting. For the simple reason that it reads like a run of the mill Sunday morning Zero Hedge sermon, which says, almost verbatim, that the days of kicking the can via flawed monetary policy are now over, and that the time for central banks to end the monetary morphine drip has finally come.

The BIS message, as summarized by the FT, is that "central banks must head for the exit and stop trying to spur a global economic recovery... cheap and plentiful central bank money had merely bought time, warning that more bond buying would retard the global economy’s return to health by delaying adjustments to governments’ and households’ balance sheets."

Here is a better summary of the BIS' unprecedented U-Turn on its 5 year long monetary strategy, in its own selected words:

Can central banks now really do “whatever it takes”? As each day goes by, it seems less and less likely... Six years have passed since the eruption of the global financial crisis, yet robust, self-sustaining, well balanced growth still eludes the global economy. If there were an easy path to that goal, we would have found it by now.

Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Hence, central banks must manage a return to their stabilisation role, allowing others to do the hard but essential work of adjustment.  

Many large corporations are using cheap bond funding to lengthen the duration of their liabilities instead of investing in new production capacity.  

Continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system.

Overindebtedness is one of the major barriers on the path to growth after a financial crisis. Borrowing more year after year is not the cure...in some places it may be difficult to avoid an overall reduction in accommodation because some policies have clearly hit their limits.
Of course, it would have been more useful for the BIS to reach this commonsensical conclusion some four years ago (or roughly when we started preaching to the choir, which now includes the BIS itself), instead of allowing the global private bank controlled syndicate known as "central banks" to inject $15 trillion into global capital markets in the past 4 years, and nearly $25 trillion since 2000.

Read more -

No comments:

Post a comment