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G-20 Inflates the Global Economy to ProsperityGary Dorsch Who says central bankers can’t inflate an economy to prosperity? To head-off the worst economic downturn since the Great Depression, the “Group-of-20” central banks have slashed interest rates to record lows, while politicians have funneled trillions into the coffers of the most powerful Oligarchic banks. So far, the cost of mopping up after the world financial crisis is a staggering $12-trillion, or equivalent to around a fifth of the world’s annual economic output. The hefty price tag includes capital injections pumped into banks in order to prevent them from collapse, the cost of soaking up toxic assets, guarantees over debt, and liquidity support from central banks. Most of the cash, about $10.2-trillion, was spent by the so-called developed countries, while the emerging countries spent only $1.8-trillion, mostly in the form of liquidity injections into banks. In return for this hefty investment, the pace of job losses has slowed, and there’s been a recovery in industrial output. At the same time, global stock markets have bounced back with startling speed. Since hitting bottom in March, the MSCI World Index has rebounded by 50%, and key industrial commodities, such as crude oil, copper, rubber, and iron-ore have also rebounded in synchronization. World markets were ecstatic, after the G-20 finance ministers pledged to continue to underwrite the global recovery with massive stimulus, in the form of deficit spending, ultra-low interest rates, and expanding the money supply. On Sept 2nd, US Treasury chief Timothy Geithner said although the global economy has pulled back “from the edge of the abyss,” it’s too early to let up on inflating stock market bubbles. “We’ve come a very long way. We still have a very long way to go,” he said. The G-20 central banks have pumped an ocean of high-powered liquidity into the world banking system, designed to artificially inflate asset markets. Under the radical “Quantitative Easing” (QE) scheme, the Fed is printing $1.75-trillion in order to buy Treasury and mortgage backed bonds. The Bank of Japan is printing 1.8-trillion yen each month, and monetizing half of Tokyo’s budget deficit this year. The Bank of England has expanded its hallucinogenic QE program to 175-billion pounds. Even so, US President Barack Obama said on Sept 9th, the G-20’s work is far from complete. “As the leaders of the world’s largest economies, we have a responsibility to work together on behalf of sustained growth, while putting in place the rules of the road that can prevent this kind of crisis from happening again. To avoid being trapped in the cycle of bubble and bust, we must set a path for sustainable growth while steering clear of the imbalances of the past,” Obama declared.
Seeking to spur bank lending and pull the Euro-zone economy out of recession, the European Central Bank also joined the G-20’s money printing orgy, by pouring 442-billion euros ($613-billion) of one-year funds into money markets on June 24th, its biggest fund injection ever. Italian central bank chief Lorenzo Bini Smaghi acknowledged the risks, “This enormous expansion of monetary liquidity created to tackle this crisis, must clearly be eliminated quickly to avoid the same phenomena we have seen before, and avoid fuelling a speculative bubble,” he warned. Since then however, Smaghi’s rhetoric has simply vanished into thin air, - relegated to the trash-heap of idle chatter and empty threats. Instead, much of the ECB’s money injections were funneled by the elite banking Oligarchs into equities, inflating the German DAX index 15% higher to the 5,500-level, with the tactic approval of the ECB. Ultra-low interest rates are working their magic, and combined with rising equity markets, confidence in the Euro zone’s service sector is rebounding. Germany’s services PMI jumped to the 53.8 level in August, up sharply from 48.1, to levels that prevailed before the demise of Lehman Brothers. France’s service sector PMI also rebounded sharply, jumping to 49.3 in August, up from 45.5 the previous month. Italy and Spain also showed a noticeable improvement.Still, Euro zone companies have shed jobs for 14 straight months, and the jobless rate rose to 9.5% in July, leaving the number of jobless in the Euro zone at just over 15-million.
On Sept 8th, Bundesbank chief Axel Weber denied that the ECB’s super-easy money policy would whip-up inflationary pressures. “We will start withdrawing our policy of historically low interest rates and non-standard measures at the right time. Fears that our expansionary monetary policy carries the seed for marked increases in inflation are unfounded. Against the backdrop of the favorable price outlook, I consider the current level of interest rates remains appropriate,” he said. Perhaps, ECB officials are eyeing the gyrations in the global commodity markets, for real-time clues about the future direction of inflation. A basket of commodities included in the Reuters CRB Index, when measured in Euros, is trading -35% lower today from a year ago, providing the ECB with a small window of opportunity to keep its repo rate pegged at a historic low of 1% for a few months longer. However, window of ultra-easy ECB interest rates is expected to close by year’s end, as the year-over-year comparisons of commodity prices move into positive territory, thus removing the threat of a deflationary spiral. In Europe, the gold market is coiling within a tight range, finding key pivotal support at 650-euros /ounce. Only the Euro’s recent surge to $1.4600 against the US$, has prevented gold from surging above resistance at 700-euros /oz. However, if the ECB fails to live up to pledge to drain liquidity in a pre-emptive strike, gold could surge higher. To read the rest of this report, please click on the hyperlink below: http://www.sirchartsalot.com/article.php?id=116 Sep 10, 2009 321gold Ltd |
