The Other Lance Armstrongs
Everybody's racing to the bottom these days, including central bankers.Everybody does it. That feeble excuse, heard by every parent of an adolescent at some point, was the best Lance Armstrong could conjure for taking banned performance-enhancing drugs. It simply wouldn't have been possible to win the Tour de France seven consecutive times without being juiced with various substances, he admitted in his hyped interview last week with Oprah Winfrey (which also gave her languishing OWN network a much-needed shot in the arm).
That everybody does it doesn't make it right, as every parent of an adolescent also invariably responds.
Among central bankers, however, that everybody is doing it apparently constitutes sufficient reason to join in the global money-printing surge. Without injecting their economies with monetary steroids on a massive and continual basis, like Lance Armstrong, they think there is no way they can compete internationally against other countries that are doing it, too.
The latest to join the juicing spree has been the Bank of Japan, with the prodding of the newly elected Liberal Democratic Party government led by Prime Minister Shinzo Abe, which was swept back into power on a platform to cheapen the yen and replace the two past decades of deflation with outright inflation.
"Had the dollar not incurred a deep slide against major foreign currencies, what remains the weakest U.S. economic recovery since the Great Depression would have been even feebler," he writes in the firm's research weekly.
The cheap dollar owes much to the Federal Reserve's successive rounds of quantitative easing, the polite term for the central bank's buying of bonds with money created out of thin air. The Fed's current policy—let's call it QE-4ever—consists of buying a combined total of $85 billion Treasury and agency securities per month, which is close enough to a cool $1 trillion a year for government work. And by Lonski's reckoning, the dollar is down by 17% against a broad range of currencies compared with the 2002-07 recovery and off nearly 50% from its record high of 1985.
Here in the U.S. of A., she explains, money-printing "causes a serious divide between consumers and biz. John Q. gets crumbs in the form of miserable wage growth. Biz gets all the capital it needs/wants. So far, they're gettin' away with this screaming imbalance. But as the gap between the two widens, at a point, will come a day of reckoning.
Another danger of steroids is the urge to retaliate against anybody who crosses you, which extends to the currency arena. U.S. auto makers, which have enjoyed the benefits of a cheap dollar that has helped their resurgence, last week complained about the yen's sharp drop, just as Brazil objected to the U.S. policies. Meanwhile, the euro—which has surged past $1.35 from a low around $1.20 last July and even more against the yen—looks like the one who isn't going along with the crowd
What everybody's doing is racing to the bottom, which doesn't make it right.
THE STOCK MARKET, as noted, continues to be the major beneficiary of the flood of liquidity pumped in by central banks.
The Dow industrials gained 1.2% on the week, while the S&P 500 tacked on 1%, putting the gauges at five-year highs. Chalk this up to the TINA factor, writes Jason Trennert, head of Strategas Research Partners, as in There Is No Alternative to stocks in a world of emaciated interest rates, suppressed volatility (the CBOE Volatility Index, aka the VIX, ended the week at 12.40, a somnambulant reading not seen since 2007, before the crisis hit), and with short interest at similarly suppressed levels.
http://online.barrons.com/article/SB50001424052748703596604578235580880655900.ht...=============================
In the normal course of events & at almost any other period in the modern Economic times, these sorts of actions could have been taken AND after a relatively short period of time, Demographics would have ensured that Demand returned & inflation would have ensured that the accrued Debt would have been relegated to a much more acceptable Debt to GDP ratio.
On this occasion, Demographics is guaranteed to head South, THUS removing the major Economic rebound driver of Demand!
At some point, recognition we come that "monetisation" alone can not & will not, restore Demand, nor will it restore an acceptable Debt to GDP ratio. However, by the time that inflection point is reached, it will be too late, most of the major currencies will certainly be involved in a desperate race to the bottom & Debt will explode beyond any & all, redemption! Inflation will kick in, BUT not the sort that will fix things. In some countries, such as the US, Japan & some in Europe, it will lead to runaway inflation & a spiralling cost of everything imported.
The can kickers will not want that on their watch & they will try anything & everything to avoid it, BUT the time will come. The timing of that event is extraordinarily difficult, as some of the most powerful Politicians & TPTB will be pulling in one direction, BUT there are also a relatively small, BUT quite well placed influential blocks, who will happily be trying to resist AND therefore the timing & speed of collapse, IS LIKELY TO BE BREATH TAKING, when it happens!
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