The august BIS is sounding as if it’s been reading The Daily Capitalist and at least accepting one or two of the points made here from time to time. Here are quotes from Bloomberg.com’s Central Banks Face Power Limit as Debt Persists, BIS Says:
Central banks in developed nations are confronting the limits of their ability to aid economic recovery as government efforts to strengthen their finances fall short, the Bank for International Settlements said.
“Central banks are being cornered into prolonging monetary stimulus as governments drag their feet and adjustment is delayed,” the Basel, Switzerland-based BIS said in its annual report, published today. “Both conventionally and unconventionally accommodative monetary policies (Ed: e.g., Large-Scale Asset Purchases = LSAPs = quantitative easing = QE) are palliatives and have their limits.”
While central banks’ actions were key to limiting damage from the collapse of Lehman Brothers Holdings Inc., interest rates are now “as low as they can go” and debt purchases have swollen central bank balance sheets, the BIS said. European Central Bank President Mario Draghi has indicated that the ECB is close to exhausting its tools after cutting its benchmark rate to a record low and flooding the banking system with cash.
“In the middle of all this we find the overburdened central banks, pushed to use what power they have to contain the damage,” Stephen Cecchetti, BIS economic adviser, said on a conference call. “There are very clear limits to what central banks can do. It’s critical for the health of the global economy to break the vicious cycles and reduce the pressure on central banks.”
Is the intellectual backdrop changing at least a little bit? The article continues:
The BIS was formed in 1930 and acts as a central bank for the world’s monetary authorities. It said extraordinary measures have reduced incentives for politicians and other borrowers to repair balance sheets, and created the illusion that central banks can do much more to stoke growth and redress imbalances.
Central bank policy “buys time” in the short term for banks and governments to tackle debt overhangs, the BIS said.
Only time will tell whether this sort of thinking will become mainstream. If it does, the next great debate will be regarding tax increases versus government spending cuts, or what mix of both to implement. Just as the long period of rising price inflation beginning in the early 1960s finally led to Volckerism and a commitment to disinflation with associated tectonic shifts in investment trends, the above quotes strike me as relevant to future economic and investing trends for years to come.
[...] Original Page: http://dailycapitalist.com/2012/06/24/the-bank-for-international-settlements-calls-qe-a-palliative/ Related Stories Top 25 Newspaper’s Circulation Declines by Ave. 10% Roubini: Dollar [...]
[...] The Bank for International Settlements Calls QE a Palliative (dailycapitalist.com) [...]
I hate to burst your bubble but the real reason for this statement is at the very end of the original article. I was flabbergasted as I read this because the situation is really serious and according to Mr Juncker they are supposed to lie. Why are they suddenly telling the truth? Are they scared?
But at the end of the day it’s just another power grab. Here’s the punchline:
“A currency union that centralizes the lender of last resort for banks must unify its banking system,” it said. “Banks in Europe must become European banks.”
No they aren’t scared. They want the people of Europe to be scared into a bastardized half-baked fiscal union.
You burst no DoctoRx bubble, JB.
There’s no doubt that TPTB want to move forward on European integration. If there’s to be a European superstate, and BIS favors something like that, then it may be analogous with the superstate called the United States, each state of which is sovereign and none of which gets to print its own currency; and none of which is liable for the debts of any other state. With one Federal Reserve System. Plus, the constitutions of 49 states require annual balanced budgets. Where do you see a conflict between BIS’ POV re – essentially- that countries move toward balanced budgets– and its preference for the post-WW II vision of an integrated Europe that began with Jean Monnet et al and has never stopped being favored on the continent by the elected leaders.
I was just being cynical about your hope that they have finally woken up to the problem and that there will be better discourse. They have had this opinion for a long time but have been lying about it to the public to prevent fear and panic, a la Mr Juncker.
Now they’re taking the Rahm Emmanuel approach of never letting a good crisis go to waste. Otherwise, there is no point in finally coming forth about something they have known for a long time. If they are telling the truth it’s because they want to cause fear and panic.