Central bank prophet fears QE warfare pushing world financial system out of control

Bank Burn
January 2015 FINANCIAL The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world’s financial system going into 2015. Beggar-thy-neighbor devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West. “We are in a world that is dangerously unanchored,” said William White, the Swiss-based chairman of the OECD’s Review Committee. “We’re seeing true currency wars and everybody is doing it, and I have no idea where this is going to end.” Mr. White is a former chief economist to the Bank for International Settlements – the bank of central banks – and currently an advisor to German Chancellor Angela Merkel.
He said the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession. The excesses have reached almost every corner of the globe, and combined public/private debt is 20pc of GDP higher today. “We are holding a tiger by the tail,” he said. He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. “Sovereign bond yields haven’t been so low since the ‘Black Plague’ how much more bang can you get for your buck?” he told The Telegraph before the World Economic Forum in Davos. “QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market,” he said. “Even after the stress tests the banks are still in ‘hunkering down mode.’ They are not lending to small firms for a variety of reasons. The interest rate differential is still going up,” he said.
The warnings come just as the European Central Bank prepares a blitz of bond purchases at a crucial meeting on Thursday. Most ECB-watchers expect QE of around €500bn now that the eurozone is already in deflation. Even the Bundesbank is struggling to come with fresh reasons to oppose it. The psychological potency of this largesse will depend on whether the ECB opts for shock-and-awe concentration or trickles out the stimulus slowly. It also depends on the exact mechanism used to conduct QE, a loose term at best. ECB president Mario Draghi hopes that bond purchases will push money out into the broader economy through a “wealth effect,” but critics fear this will be worse than useless if it leads to an asset bubble without gaining traction on the real economy. Classic moneratists say the ECB may end up spinning its wheels should it merely try to expand the money base. Mr. White said QE is a disguised form of competitive devaluation. “The Japanese are now doing it as well but nobody can complain because the US started it,” he said. “There is a significant risk that this is going to end badly because the Bank of Japan is funding 40pc of all government spending. This could end in high inflation, perhaps even hyperinflation.” –Telegraph
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This entry was posted in Age of Decadence, Apathy, Anger, Mistrust, Disillusionment, Austerity, Bank Run, Banking Crisis, Bankruptcy, Boom and Bust Cycles, Class Division, Currency - Economic warfare, Economic Collapse, Fiat Money Printing Fiasco, Financial market turmoil, Greed and Corruption, Hoarding Resources, Political Corruption, Social Meltdown, Squandered Resources, Struggle for Survival, The Pyramid Model, Troubled Banks, Unemployment rising, Unsustainable Debt Burden, Widening gap between rich and poor. Bookmark the permalink.

4 Responses to Central bank prophet fears QE warfare pushing world financial system out of control

  1. Frankie says:

    No stopping this train, the heat will blaze a trail to no where, here we go folks survival of the fittest

  2. niebo says:

    Oh, yeah, and there’s THIS: former hedge fund director Robert Johnson announced at the recent “environmental conference” in Davos, Switzerland that hedge fund managers all over the world are buying remote farms to escape to, in the event that (er, for when) it all comes crashing down:

    http://www.theguardian.com/public-leaders-network/2015/jan/23/nervous-super-rich-planning-escapes-davos-2015

  3. Dennis E. says:

    All people who come to this site should be preparing for a major crash of the economy and the markets. Major inflation, not seen since the depression. Not saying it is going to happen this month or the the next, but it is coming.

  4. Frankie says:

    Thoughts on this wave of Nazi, murderous misfits creeping to the surface of young unemployment…bloody tense IMO

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