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Central Banks are Stuck on a Money Printing Treadmill

Source: The Telegraph, Friday May 24th 2013

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Wednesday night’s panic in Tokyo, where the Nikkei dropped a stomach churning 7pc, kicking off a global chain-reaction that saw the FTSE fall 143.48 points, demonstrates just how difficult it is going to be for the world’s central banks to exit their loose money policies.

It’s not even as if Ben Bernanke, chairman of the Fed, said he was planning to exit; in fact, initially he said the reverse, in testimony to Congress. It was only in the Q&A, and in minutes to the last meeting of the Fed’s Open Markets Committee, that a clear bias emerged to slow the pace of asset purchases “in the next few meetings”, so long as the economic data were strong enough.

What the subsequent violent gyrations in markets indicate is that any hint of applying the brakes risks generating a fresh financial crisis, which, in turn, would render the economic recovery still-born.

Both financial markets and the real economy have become addicted to “quantitative easing”. So much so that they cannot do without it.

The upshot is that we are going to see financial repression of the type being practised in virtually all the major advanced economies – including, if only to a more limited extent, the eurozone – continue into the indefinite future.