Central Bankers: We Only Bought Time-You are On Your Own

from Grams Gold In a detailed report by the Group of Thirty, [G 30] central bankers warned that ZIRP and money printing were not sufficient to revive economic growth and risked becoming semi-permanent measures. As Reuters reports, the flow of easy money has inflated asset prices like stocks and housing in many countries but have failed to stimulate economic growth;…

“Central banks have described their actions as ‘buying time’ for governments to finally resolve the crisis… But time is wearing on,” sending a message of “you’re on your own” to governments around the world.

The G30 begins their report rather pointedly… Central banks worked alongside governments to address the unfolding crises during 2007–09, and their actions were a necessary and appropriate crisis management response. But central bank policies alone should not be expected to deliver sustainable economic growth. Such policies must be complemented by other policy measures implemented by governments. “At present, much remains to be done by governments, parliaments, public authorities, and the private sector to tackle policy, economic, and structural weaknesses that originate outside the control or influence of central banks. In order to contribute to sustainable economic growth, the report presumes that all other actors fulfill their responsibilities. Roughly translated…

central bankers are saying “you are now on your own.”

First, there is great uncertainty concerning the consequences of tightening. Second, in some cases it will in fact be clear that tightening will reveal some debts as being unserviceable, and some financial institutions as undercapitalized. Central banks will then be asked to wait until these other sectors have become more robust, which could well take a long time. … Third, debtors will obviously resist the tightening of policy. Since governments are struggling to manage record-high sovereign debt levels, they too will be tempted to put pressure on their central banks to push back tightening as far as possible.But delaying an ‘exit’ has costs… The policies followed by the major central banks since 2008, while contributing to stability in the short run and conceivably avoiding a second great depression, might also have aggravated threats to future stability. With the consequences of an exit from easy money so unpredictable, the G30 said the risk was of exiting too late for fear of sparking another crisis. And so, while ‘exit’ is seen as urgent, it is unlikely… “Faced with uncertainty, the natural default position is the status quo,” the G30 said. In other words more of the same… Should the global economy stay weak, or indeed should it weaken again as financial markets overshoot, we could face the possibility of debt deflation. The almost 40 percent decline in commodity prices since mid-2014 could be a precursor of such a slowdown. …. Governments with both large deficits and large debts must borrow to survive, but worries about debt accumulation might imply an increasing reluctance on the part of the private sector to lend to them at sustainable rates. In that case, recourse to the central bank is inevitable, and hyperinflation often the final result. …the academics will be the first to note that policy escalation may be required (helicopter money).. and then policy-makers have the ivory tower to lean on when they unleash it.” Finally, The G30 admits – it’s all an illusion… So, the bottom line, reading between the lines of this 80-page report, is that

Central Bankers:

  • know their policies have done (and will do) nothing to promote real economic improvements,

  • are putting pressure on governments to do something (anything),

  • admit that is unlikely (because the central bankers have always saved them before),

  • expect extreme policy measures to become the status quo (despite admitting their failure) for fear of any asset weakness, and suggest more measures might be needed (which have led to hyperinflation in the past).

But apart from that – everything is awesome!!

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