ECB’s Mario Draghi has run out of magic as deflation closes in

The Telegraph/Ambrose Evans-Pritchard/9-9-2016

“The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle.”

MK note:  We have commented extensively on the demographic problem facing global central banks.  Call it secular stagnation.  Call it what you will.  The fact of the matter is that the disease inflicting global economies translates to some rather frightening systemic risks.

The Financial Times’ Gillian Tett addressed the present dangers extensively in a September 1, 2016 article under the title, Echoes of 2008 as danger signs are ignored.  We are reminded that Ms. Tett caused quite a stir back in the 2006-2007 with her warnings of what was brewing in financial markets.

“. . .[W]hat was notably absent from the agenda [at Jackson Hole],” she says, “was a full-blown discussion about the issue that is on the minds of most financial practitioners: namely some of the peculiar distortions that are developing in the weeds of modern finance. Anybody who deals with financial markets on a micro level today — as a banker, asset manager or corporate treasurer — knows that many asset prices are extraordinarily elevated.”

Evans-Pritchard talks about the European Central Bank having run out of ammunition, but top central banks around the world find themselves pushing against the same rock.  Since we have never been here before, no one has a real idea where it all might end.  That said, a long list of prominent money men, as we pointed out in our last newsletter, have an idea what the individual investor might do about it.  And that list, as we pointed out in that issue, grows by the day.