Central bankers continue to be complacent about the risks of inflation...
From the FT...
The world’s central bankers were in no hurry to start raising interest rates as they headed home on Sunday from the US Federal Reserve’s annual retreat in Jackson Hole, Wyoming.
In private and in public, most officials indicated they believed that rates could be maintained at ultra-low levels for a considerable time without generating excess inflation, in spite of better economic data and a return of “animal spirits” in financial markets.
Some used the platform of the conference to push back against calls for early implementation of “exit strategies” that would reverse the current extraordinary degree of monetary stimulus.
“There is no reason to re-assess our monetary policy stance,” Erkki Liikanen, Finland’s central bank governor, told Bloomberg news agency. Ewald Nowotny, Austria’s central bank chief, said he did not favour adding a surcharge to the European Central Bank’s next offer of one-year loans to banks – a view shared by some other European officials in Jackson Hole.
Given that debt to gdp in the western economies currently exceeds previous high levels by several magnitudes, and that there is truly massive deleveraging going on in response to this, money will continue to be created to balance this.
ReplyDeleteIn a debt based fiat system it is death to banks, and the economy, when debt levels are shrunk, and money therefore vanishes. Their balance sheets get screwed.
Current economic policies will continue until "more than" equilibrium is established. ie excessive money supply, with normal money velocity.
The debt to gdp ratio currently, and additional state liabilities, can only be met by deliberate future inflation.
All the talk about exit strategies is just hogwash.
The danger is that varying inflation levels in separate countries, increased by international capital flows will create a "currency event" that creates hyper-inflation.
In such a scenario, NO central bank can withdraw liquidity quick enough, as it becomes a confidence problem, where velocity potentially can approach infinity.
And that is the cliff precipice that these clowns will insist on walking on in the medium future.