The global financial crisis is so nine years ago, and still the central banks can’t seem to find a way to "normalize" policy. Measures that had been introduced as emergency responses have morphed into permanent fixtures without which, we are told, growth would become impossible. And, so, not only do the balance sheets of the world’s central banks continue their relentless expansion, the rate of expansion has actually accelerated to a rate of $2 trillion per year, i.e., more than the GDP of Italy (see following exhibit). Since the 2008 meltdown, the technocrats have "minted" a collective $10 trillion worth of new balance sheet in a failed attempt to achieve "escape velocity." Yet, what these extraordinary measures have failed to achieve in terms of wages and incomes, they have more than "made up" for in terms of leverage and asset prices.
The global capital markets have proven adept at transmitting newly created credit from one region to the next and from this asset class to that. Hence, the central banking "stimulus" programs have had a deep and very widespread scope of impact. Rates are set negative here, driving a reach for yield there. Corporate debt removed from circulation in Europe supports narrow risk premia in the U.S. But, to what end? Without a sustainable rise in GDP and incomes to match this global levitation in asset prices and leverage, the central bankers are only ensuring that when the inevitable cycle denouement comes, the down trade will be omnipresent.
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