By: Stephen Lendman
Since 2009, an ocean of easy money saved American, EU, and Japanese economies from collapse.
Never before historically did the world’s largest central banks abandon reason and go “absolutely berserk,” according to financial expert Martin Weiss. Earlier ones alone did it.
Four is unprecedented and dangerously reckless. So far they’re swimming above water together. Eventually they’ll sink when “the money drug stops working.” Diminishing returns eventually follow, then perhaps crashes when things spin out of control.
Economic growth already is faltering. Lower or declining growth despite larger money infusions shows trouble gets closer to erupting. As long as printing presses roll, day of reckoning’s postponed, but that game only works for so long.
Drug addicts need regular fixes, then bigger ones. They lead to overdoses and death. Economies are similar. What can’t go on forever, won’t. Trouble awaits excess down the road. The more extreme, the greater the bang. It’s coming and will rock the world.
For over two decades, the Bank of Japan (BOJ) printed money “like crazy.” In 2008, when crisis erupted, BOJ’s balance sheet already was bloated. It totaled 20% of Japan’s economy. Now it’s about 30%.
Germany’s 1920s hyperinflation resulted from similar monetary madness. Easy money in America under Greenspan was bad enough. Bernanke made him look tame. Since 2008, he more than tripled the Fed’s balance sheet from about 6% of GDP to 20%, and hasn’t quit yet.
The Bank of England (BOE) matched the Fed. Perhaps it feels what’s good for the goose is good for the gander. Good for what must be asked? Bankers and corporate giants had a party. Ordinary households were entirely left out. Potentially an unprecedented train wreck approaches.
Since 2011, the European Central Bank (ECB) led the money printing global race. Its balance sheet expanded to almost 30% of GDP for 17 member countries. Each dissimilar from the others, they’re paying a collective price.
PIMCO’s Mohamed El-Erian sounded an alarm asking what happens if central banks fail? They flooded Western economies and Japan with money irresponsibly. El-Erian believes they “no longer” should keep doing it. Their policies are losing effectiveness. Greater “collateral damage and unintended circumstances” are increasing.
While short-term liquidity infusion effects are clear, longer-term ones raise concerns. Bottom line, says El-Erian, is that “central banks can no longer – indeed, should no longer – carry the bulk of the policy burden.”
“Rather, it is a recognition of the declining effectiveness of central bank tools in countering deleveraging forces amid impediments to growth that dominate the outlook.”
It’s also about growing risks too great too ignore. “(S)afe deleveraging” must replace years of monetary madness.
The global system’s “Western core” weakened and “multilaterism is challenged.” Central banks may have built “expensive bridges to nowhere.” Ripple effects from are felt globally. Their “ballooned” balance sheets are dangerously overstretched.
Debt crises persist. Economies are bailout dependent. Policies so far avoided crashes. At issue is for how long? Europe is especially troubled. Zombie Greece awaits its obituary to be written. Portugal’s on the verge of cratering. Spain and Italy aren’t far behind. France and Britain are weak. Germany, the continent’s underpining, shows disturbing signs.
Rising bond yields signal trouble. Some financial analysts suggest euro crisis round two arrived or at the least draws near. A Financial Times/Brookings Institution report said the world economy “remains on life support.” It’s levitating on an ocean of money. According to Brookings’ Eswar Prasad:
“The global economic recovery is still spluttering due to a lack of robust demand, policy tools that are stretched to their limits and unable to muster much traction, and enormous risks posed by weak financial systems and political uncertainty.”
A worried Wall Street Journal article headlined, “Sowing Seeds of the Next Major Crisis,” saying:
In America and Europe, private sector “dependence on government support” produces “excessive risk-taking, distortions in capital markets, and” greater inflationary pressures. The foundation for the next crisis looms.
What worked last time won’t next time around. Unpalatable consequences await. When risk stops being a dirty word, today’s “unwitting experiment in state-influenced capital markets may be sowing the seeds of the next crisis.”
Fragility threatens greater crisis with few effective tools left. Global slowdowns and declines are increasing. Troubled Greece is a corpse awaiting burial. Spain’s pain contaminates the continent.
What’s a central banker to do? There’s “little they can do on their own,” says El-Erian. Avoiding global depression conditions may have only delayed them. Main Street America and Europe already experience them.
Monetary madness put central banks in a box. They made their bed and have to sleep in it. So do ordinary households victimized by their policies. Western banks, other corporate giants, and rich elites got the benefits. They got the pain. It’s not getting better. It’s getting worse.
The mother of all walls approaches. Rising inflation may signal it. Housing’s continued crisis prevents recovery. Financing remains totally dependent on government support.
Risky liar loans keep being made. It proved past mistakes taught nothing. Weiss notes worrisome “deadly cancers.” Wall Street central bankers run things. Elected leaders were shoved aside.
Instead of financing growth through savings and investments, debtor economies are financed with fiat currencies. Instead of prudent investing, speculative excess dominates financial markets.
Bad endings are preordained. How bad depends on how long imprudence prevails. It shows no sign of ebbing. The longer it’s sustained, the worse the outcome.
Former bank regulator/financial fraud expert Bill Black believes today’s crisis is 70 times larger than the collapse of the S&L industry in the late 1980s.
“(G)enius technocrats” aren’t in the wings with solutions. Forgotten past mistakes are repeated. Consequences are far more grave. Unprecedented fraud produces today’s profits.
Later on watch out. Catastrophe awaits to arrive. It’ll choose its own time, place, and severity, but promises harder times perhaps than anyone can imagine. Postmortems will tell all. Don’t they always when it’s too late to matter?
About the author: Stephen Lendman writes on topics of international importance such as war and peace, American imperialism, corporate dominance, political persecutions and other socio-economic and political issues. He is also the author of ‘How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War’ and the co-author (along with J. J. Asongu) of ‘The Iraq Quagmire: The Price of Imperial Arrogance’. A former marketing research analyst, Lendman also hosts the Progressive Radio News Hour (on the Progressive Radio Network, Thursdays at 10:00 AM & Saturdays/Sundays at noon, US Central Time), that features cutting-edge interviews with distinguished guests. Click here to visit his blog.