"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Wednesday, September 22, 2010

Hair of the dog that bit you...

We are in the midst of a global balance sheet recession, and the world's central banks have decided, in their wisdom, that more debt needs to be shoved down the throat of a system that is already choking on credit.
Not to be outdone by each other, it seems that recently, within just the last few days, the central banks from the world’s largest economies are greasing the printing presses, or at least warning everyone that they intend to run their presses soon...  so get ready for some serious overtime printing, and keep an eye on the price of gold. 
From the International Business Times: BoJ under pressure to ease policy further – Sept 22, 2010:
A Bank of Japan policy board member said on Wednesday buying more Japanese Government Bonds (JGB) by the Bank of Japan (BoJ) was one policy option on the table even as global growth outlook was dealt fresh blows from a downbeat Fed report on Tuesday.

Addressing a news conference, Ryuzo Miyao said: "That's one policy option ... We won't have preset ideas about our future policy." 
Article continues:
Miyao's comments are a sign that pressure is building on the BoJ to further loosen its monetary policy, especially as the yen is showing signs of strengthening against the U.S. dollar.
He said a weakness in the U.S. economy will lead to a bleaker outlook for the world economy, which could hit Japanese exports further.

Earlier on Wednesday Miyao said the central bank was ready to ease monetary measures further if downside risks to the economy intensified.
"As the uncertainty over the outlook--mainly the U.S. economy--grow, we cannot let our guard down against downside risks to our economy," he said in comments made following the US Federal Reserve suggested it was uneasy about the current fragile economic backdrop, particularly the subdued inflationary trends
Bank of England
The Bank of England signaled that policy makers are moving closer to adding more stimulus to the economy, joining the Federal Reserve in contemplating further bond purchases to revive a flagging recovery.
The Monetary Policy Committee, led by Governor Mervyn King, voted 8-1 to keep the benchmark interest rate at 0.5 percent and the bond-purchase plan at 200 billion pounds ($313 billion). While Andrew Sentance pushed for a fourth month to raise the rate “gradually,” “most” officials see the central bank’s current stance as “appropriate,” according to minutes of the Sept. 9 meeting released by the central bank today in London.
“For some of those members, the probability that further action would become necessary to stimulate the economy and keep inflation on track to hit the target in the medium term had increased,” the minutes said.
“It certainly seems that the MPC is edging closer towards doing more quantitative easing and perhaps out of all the central banks is getting closest in providing additional stimulus to the economy,” said Samuel Tombs, U.K. economist at Capital Economics Ltd. in London, in a telephone interview. Tombs said the Bank of England may buy an extra 50 billion pounds in government bonds “at the start of next year.”
European Central Bank

From the Wall Street Journal: ECB Steps Up Its Bond Buys Amid Worries  - Sept. 20, 2010

The European Central Bank has increased its purchases of government bonds amid rising concerns in financial markets about the ability of Greece, Ireland and Portugal to repay their debts.

The ECB initiated the bond-buying program in May, the height of Europe's fiscal crisis, purchasing the debt of troubled countries in the 16-nation euro zone. The program was the central bank's two-fold bid to build confidence—first, public confidence in the ability of those countries to meet their obligations and second, investors' confidence that the central bank could always step in to keep markets liquid.

The objective of the bond purchases, ECB President Jean-Claude Trichet said last month, is "to help restoring a functioning of our monetary policy transmission."
Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term…
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.
The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.
Well, there you have it.  The race to the bottom continues.  But can you blame the central banks?  A monetary system that needs to constantly expand or else it collapses, requires such measures.  The time for responsible stewardship of the currency is over - it was over decades ago.  So... let them print, at least it  gives the rest of us more time to prepare for the monetary transition ahead. 
To my Northern hemisphere readers:  Happy Autumn, and Happy Spring to my Southern hemisphere readers. 

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