The QE stimulus is simply not getting to the right places to create a sustainable benefit to the broad community, as has been very obvious. It begs the question as to why do the same thing, when you keep doing the same thing, has not worked, ... is it just another example of a dichotomy between economic theory and the real world? or lunatics passing time.
Bill Gross articulated in his April newsletter,
“Zeno’s Paradox” with excerpts below (emphasis added):
The reality is this. Central bank polices consisting of QEs and negative/artificially low interest rates must successfully reflate global economies or else. They are running out of time. To me, in the US for instance, that means nominal GDP growth rates of 4-5% by 2017 – or else. They are now at 3.0%. In Euroland 2-3% - or else. In Japan 1-2% - or else. In China 5-6% - or else.
Or else what? Or else markets and the capitalistic business models based upon them and priced for them will begin to go south. Capital gains and the expectations for future gains will become Giant Pandas – very rare and sort of inefficient at reproduction. I’m not saying this will happen. I’m saying that developed and emerging economies are flying at stall speed and they’ve got to bump up nominal GDP growth rates or else…
Unless real growth/inflation commonly known as Nominal GDP can be raised to levels that allow central banks to normalize short term interest rates, then south instead of north is the logical direction for markets.
....We have trillion dollar central bank balance sheets, near zero interest rates in much of the developed world and yet little growth to show for it. Like the impact of medication that over time loses its effectiveness, we are reaching the point in which central bank intervention is counterproductive and simply not enough. We saw this late in January when the BOJ moved short-term interest rates into negative territory. Unlike prior stimulus measures, the Japanese stock market is down double-digits since the move and rather than weaken the Japanese Yen to stimulate exports,
the Yen has actually rallied.
In Europe, we’ve seen ECB President Mario Draghi step up stimulus measures even further by expanding its money printing and The STOXX Europe 600 Index rallied only marginally and has since already given back most of the gains post the ECB meeting.
Developed and emerging countries all across the globe are grappling with high debt loads, which is why central bank intervention has not had a meaningful impact and why the US and the globe face the risk of slipping into a recession. Monetary policy is never meant to work alone but rather in concert with fiscal stimulus and we’ve had just the opposite here in the US and elsewhere.
Consumers need to save but we all can’t cut back on our budgets or we would be in a depression. Someone has to do the spending, which becomes another person’s income, and in times like these, it is government spending that needs to kick in. In the Great Depression, it was FDR’s
New Deal that helped revive the economy along with war spending during WW II. The most glaring modern
New Deal I can see is a massive overhaul of US infrastructure, which
the American Society of Civil Engineers (ASCE) grades a
D+ and says the estimated investment needed by 2020 is $3.6 trillion...
and so it goes...
I certainly hope we are not relying on the Central Banks teams of well meaning, well dressed, economists to fix the world, but that sadly seems to be the case.
