|
Central Bankers are flummoxed.
Having cut interest rates over 600 times since 2009 (and printed over $15
trillion), they’ve yet to generate the expected economic growth.
This failure hasn’t produced any change in their chosen course of action.
The Bank of Japan (BoJ) and the European Central Bank (ECB) are both
currently engaged in QE programs. The US Federal Reserve is the only major
bank not to be employed QE, though it does continue to expand its balance
sheet every month during Options Expiration weeks.
Regarding interest rates, the ECB has already moved to employ Negative
Interest Rate Policy (NIRP). The BoJ and the Fed are still at ZIRP, though
the latter has several officials who have begun calling for NIRP.
Why, after six years, are we still seeing such aggressive policies?
Because deflation, the bad kind, is once again lurking around the corner.
Anyone with a functioning brain knows that deflation is a good thing. No
one complains when they are able to buy something at a lower price, whether
it is a home, gasoline, or computer.
However, debt deflation is a different story. Debt deflation means that
future debt payments are becoming more expensive. This means that debt
servicing will become more difficult, eventually leading to default and debt
restructuring.
It is debt deflation that remains the primary focus for the global Central
banks. Indeed, if you consider the threat of debt deflation, every Central
Bank move makes sense. ZIRP, NIRP, and QE all have the same goal in
mind: to lower interest rates and push bonds higher (thereby making sovereign
debt loads more serviceable).
With this in mind, even a whiff of debt deflation is enough to give
Central Bankers nightmares. It’s also why they are so fond of inflation via
currency devaluation, as it permits them to render massive debt loads more
serviceable.
Unfortunately, the great “reflation experiment” is failing.
Indeed, as Societe General has noted, it appears the developed world may be
“turning Japanese” i.e. moving into a long-term deflationary cycle similar to
that which has plagued Japan for the last 20 years.
This will eventually result in a stock market crash, very likely within
the next 12 months... and smart investors would do well to prepare now before
it hits.
If you've yet to take action to prepare for this, we offer a FREE
investment report called the Financial Crisis "Round Two"
Survival Guide that outlines simple, easy to follow strategies you
can use to not only protect your portfolio from it, but actually produce
profits.
We made 1,000 copies available for FREE the general public.
To pick up your FREE copy, swing by…
https://www.phoenixcapitalmarketing.com/roundtwo-ZH.html
|
