After having announced a progressive tapering, followed the stop, at term, of the Quantitative Easing, Ben Bernanke finally backpedalled yesterday.
Indeed, since his previous announcement, wide fund movements caused not only a raise in the US long end interest rate curves, but also the drying of the liquidity in the emerging markets associated with a raise in their financing rates. Europe didn’t escaped to this logic and saw his rates raising. The fact that the emerging economies are the locomotive of the world growth, and that Europe is the centre of the worries of investors led to a climate of tension with high risk & weak growth perspectives.
With a wave of a magic wand, the Fed chairman eliminated the worst scenarios.
Seen from this point of view, he has taken the wise decision, but someone told me that there is no free lunch, and every action has its consequences.
A large part of the financial community agrees to say that the successive QE have artificially sustained the mortgage market, the bond market, and the action market has reached the pre-crisis levels. This flood of liquidity may have caused over-liquidity problems associated with misallocation troubles of this money, and some are already talking about bubbles. Furthermore, the recent facts have proven that the world is already addicted to these “non conventional” measures.
The BIS (Bank for International Settlement), one of the few institutions which predicted the 2007 crisis, has launched warning against these actions.
I am maybe too alarmist, but the reason of this topic is to gather different feelings (even short) about what is the risk of these actions and what could be the consequences, if any?
It's a 60yr cycle. Interest rates have fallen for the last 30 years and, on average, they should rise for the next 30 years with bonds regaining their monica of 'guaranteed certificates of confiscation'.
The banksters and politicos are not in charge but they still run amok in the 'destroy the markets' or 'destroy the currencies' sandpits solely for their own benefit. Ordinary folk just lose out either way, banksters will still print to get first access to thin air tender and governments will still tax, borrow, inflate and spend to look after themselves while they can, situation normal.
Much depends if real growth in new civilisations (peoples, awareness and technologies) can replace the decay in the old ones and how long the massive rent seeking capital flows that now dominate every other economic variable continue to rise and oscillate back and forth. In this environment looking for the medium term trajectory of anything in particular is fraught. Except maybe presidents - for which the late and great P.Q.Wall once said "If you want to know what the next 12 presidents will be like, look no further than the last of the Caesars".
Otherwise expect ongoing massive deflations and inflations all over the place for as long as we have a nonsense monetary system, while remembering to work hard for those 20 ticks a day that keep the wolves at bay. Every trend goes too far and begets the start of the next trend and all cycles continue to turn. Spengler might be right but a pessimist is only an optimist with experience.
Last edited by ratfink; July 11th, 2013 at 12:30 PM.
Reason: j tut
I am closing this thread to prevent a split topic.
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