World’s Central Bankers are Fighting “the Tape”
The world’s central bankers are fighting “the tape” by pumping massive amounts of liquidity into the global economic system in an effort to avert deflation.
Notably, deflation is a natural force of nature during Peace Time, when globalization leads to free trade and heightens competition.
During War Time, inflation prevails because there is much less competition.
Populations around the world are rapidly aging as fertility rates have collapsed and longevity has increased. Older consumers tend to spend less than younger ones spend, resulting in less upward pressure on prices.
Consider the following:
- Physicist and Cosmologist Stephen Hawking has expanded his theories to explain the protectionist response to globalization. He is most renowned for his research contributions on the subject of black holes, which are places in space where gravity pulls so much that even light cannot get out. In a recent report, he suggested that the recent rise in protectionist sentiment around the world could be a black hole for global economic growth.
- Bill Gross, Bond Wizard has also gone cosmic. He warns that central bank policies that pushed trillions of dollars into bonds with negative interest rates will eventually backfire violently, Tweeting, “Global yields lowest in 500 years of recorded history,” He added, “$10-T of neg. rate bonds. This is a Supernova that will explode one day.” A Supernova is a star at the end of its life that suddenly increases greatly in brightness because of a catastrophic explosion that ejects most of its mass. Bill Gross has argued for some time that the economy is at the end of a decades-long cycle of expanding credit that has culminated in negative interest rates, a situation he said is unsustainable. Rather than spurring economic growth, low rates are promoting asset bubbles as investors reach for higher yields while punishing individual savers and industries that rely on interest rates, such as bank and insurance companies.
- George Soros. “After a long hiatus, George Soros has returned to trading, lured by opportunities to profit from what he sees as coming economic troubles. Worried about the outlook for the global economy and concerned that large market shifts may be at hand, the billionaire hedge-fund founder and philanthropist recently directed a series of big, Bearish investments, according to people close to the matter,” wrote the WS-J. Mr. Soros remains Bearish on China. He told the WS-J,“China continues to suffer from capital flight and has been depleting its foreign currency reserves while other Asian countries have been accumulating foreign currency. China is facing internal conflict within its political leadership, and over the coming year this will complicate its ability to deal with financial issues.” He is also Bearish on the European Union. He argues that there’s a good chance the EU will collapse under the weight of the migration crisis, continuing challenges in Greece, and a potential exit by the United Kingdom from the EU, “If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable.”
- Stanley Druckenmiller. Speaking at the the Sohn Investment Conference last month, Mr. Druckenmiller announced that he was going to the Dark Side: “Three years ago on this stage I criticized the rationale of US Fed policy but drew a Bullish intermediate conclusion as the weight of the evidence suggested the tidal wave of central bankers money worldwide would still drive financial assets higher. I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself.”
The take away from the Dark Siders, “Central bankers have no end game, markets do. There is no Boom w/o a Bust.”