Central Banker and their Problems
Global Economics Weekly Brief
It isn’t easy being a central banker these days. Many developed economies remain in very dire straits as traditional interest rate policy has been exhausted. Central bankers have therefore been forced to turn to unconventional policy tools, which some see as highly controversial.
In the US, Federal Reserve Bank chairman Bernanke’s hints about more quantitative easing (QE) haven’t been taken well by some politicians who believe that QE is akin to treason! (Who will pay for all these QE?)At the European Central Bank (ECB), president Draghi stands ready to restart sovereign bond purchases. This too has attracted criticism from the head of the German Bundesbank, who believes this policy is too close to monetary financing. Five years on from the start of the credit crunch central bankers remain directly in the firing line. Do bankers and governments read about the AD 33 credit crunch? See below.
Good news for the US housing market, but it's still on the doctor’s watch list. As measured by the Case-Shiller Index, average US home prices increased by 2.2%q/q in Q2, the largest such increase since 2005. Year-on-year prices were up by 1.1%, the first annual rise since 2003. Prices increased in all 20 of the cities in the index over the month. These are the first reliable signs of a broad-based strengthening in US house prices. But let's not get carried away. Better is different from good and the average house was still worth 31% less in nominal terms in Q2 than at the peak in Q1 2006. Watch out for the December 2012 decline again in house prices!
Fed preparing the ground for more stimulus? August's Beige Book report on US economic conditions says that recent growth has been "gradual", a downgrade in Fed speak from June's "modest to moderate" growth. That's consistent with the Fed's view that growth will be insufficient to bring unemployment close to the target any time soon and is another argument for QE3. Indeed, Chairman Bernanke dropped a big hint that further monetary stimulus could be on its way. Speaking at the Jackson Hole conference, Bernanke emphasised that the Fed will provide “additional policy accommodation as needed”. A signal that the Fed is warming up the printing presses ahead of the September 12-13 meeting perhaps! People have very little money to spend on the uncertain future - people are `buttoning down the hatches` for tougher times ahead!
Corporate deleveraging continues apace in the UK. Lending fell across a broad swathe of sectors in the three months to July. Meanwhile corporate deposits were up 1.5%y/y as companies are still wary about taking the investment plunge. Cheaper borrowing via the Government's new Funding for Lending scheme may help to tempt them into action, but with the UK in recession and the Eurozone crisis raging on, their reluctance isn't surprising. On the bright side, stronger balance sheets will put companies in a better position to move once sentiment begins to change. When will it change? Also, when will companies start spending?
Households are still struggling to reduce their debt levels. While households have reduced their reliance on consumer credit, overall debt levels have increased this year. Outstanding consumer credit balances fell by 0.4%m/m and 4.9%y/y in July and are 24.4% lower than in July 2008. This decline has been driven by a reduction in personal loans and overdrafts. But secured lending has prevented overall consumer debt from falling. Even though secured balances grew at only 1%y/y, compared to a more typical pre-crisis average of 9%, their sheer size mean that this is much more difficult for households to get on top of. Household deposit growth was a robust 4.2%y/y in July, although much of this is likely to be explained by deposits of large PPI settlements paid out this year. Household debts are increasing under the pressure to survive the high food, fuel, and others costs that continue to rise rapidly!
Record high unemployment a real headache for Eurozone policymakers. The aggregate Eurozone unemployment rate remained at a record 11.3% in July, up from 10.1% just 12 months ago. The number of unemployed people increased by 88,000 in July to a total of 18 million as the sovereign debt crisis continues to take its toll. Spain is suffering most with unemployment climbing to a frightening 25.1%. Austerity in the face of such chronic labour market conditions is clearly a tough task. Even core countries are now showing signs of deterioration. The Netherlands continues to enjoy a low unemployment rate of 5.3%, but even this has increased from 4.3% over the past 12 months. In the next six months rapid unemployment will spread all over Europe if action is not taken to invest in the future projects for growth!
The clash of the central bankers. It is all hands to the pump at the ECB ahead of a pivotal meeting later this week. Despite this, President Draghi found time to confront critics of his proposals to buy sovereign debt from troubled Eurozone member states. Weidmann, the head of the Bundesbank had warned that countries could become addicted “like a drug” to central bank support, and thus avoid much needed reforms. Draghi countered that “our mandate sometimes requires us to go beyond standard monetary-policy tools”. Touché! There is too much waiting, action is required now!
Global trade slowdown intensifies. China's manufacturing PMI remained firmly in the slow lane in August, falling to 47.8 from 49.3. The PMI has now been below 50 for ten straight months. New export orders fell to a worryingly low 44.7 - the most depressed figure since March 2009. This suggests a further slowdown in activity in coming months, which could well nudge the People’s Bank of China in the direction of more easing. Stock piling of goods is a major issue!
Stockpiles also rising in the world’s second largest economy. China’s inventory overhang has been rising steadily for a number of months and stands at a record high according to PMI data which goes back to 2004. With firms having struggled to anticipate the slowdown in global demand we could well see a sharp adjustment in production as companies look to reduce their inventory. This is the last thing the global economy needs with the Eurozone crisis raging on and uncertainty gathering around the US fiscal outlook. The next six months will see companies going-bust globally big-time! We live in the `real-world` so we must all plan to survive and be successful by looking ahead and plan accordingly.
China Export Growth Collapses as World Recovery Slows - click on the connection below for comprehensive information.
What are your plans for your future to be successful?
The Credit Crunch of AD 33 Repeats itself time and time again!
What with the Bank of England pushing £375+ billion and the USA Federal Reserve $1+ trillion into their countries respective banking systems, readers may be interested to learn of the following from `Banking & Business in the Roman World`;
In AD 33 the lack of cash continued to become increasingly serious (where have we read this before many times?). To remedy the situation, through the intermediary of `ad hoc` financial offices directed by Senators, the Emperor himself offered interest-free loans amounting to an overall sum of 100,000,000* sesterces from his personal fortune for the duration of three years. The borrowers were required to offer security in the form of real estate or buildings. In this way they were not forced to divest themselves of their patrimony in order to pay off their debts. Fides, that is to say confidence, returned, and the situation was retrieved for a short time.
Why do politicians/bankers/lenders ignore history? and yet history repeats itself several times because these people do not read! People need to read `The Rise and Fall of the Roman Empire` and then perhaps they will learn how to avoid repeating history.
Please share with me your views.
Plus, the banks globally are still stashing cash at the highest levels ever recorded, why? We all know why, don`t we! Will we see a run on the banks soon?
The Euro currency will continue to suffer in the hands of Greece, Portugal, Spain, Italy and Ireland followed by France who are `all` in `deep` financial difficulty as first stated here in January 2008. Who will leave the euro currency first? Then who will follow? What future as the Euro? Watch this space!
What `all` governments and banks globally need to understand is about how to operate within financial budgets, please click on the image below;
Online Financial Training
We have another global crisis that needs urgent attention by skilled and experienced people who can do the job right!
Storm warning: As the European debt crisis spreads across the continent, the outlook for the single currency has never looked so grim. Financial markets fluctuated violently as fears that Italy, Spain and France now, plus Germany in the future will be dragged into the eurozone debt crisis triggered another day of turmoil for investors.
The causes of the credit crisis in a short, engaging video: click on the link below;
The Crisis of Credit Visualized
The Euro currency will continue to suffer in the hands of Greece, Portugal, Spain, Italy, Ireland and France who are `all` in `deep` financial difficulty as first stated here in January 2008. Who will leave the euro currency first? What future as the Euro? Watch this space!
Spending our way out of worldwide recession will take years to pay back--and create a lot of pain.
Please request your complimentary publication `The Global Competitiveness Report 2010 - 2011` World Economic Forum
--- --- ---
More Economics and Business Inspiration:
`Accelerate with Impact` -
by Colin Thompson ISBN: 978-1-84549-289-2
Accreditation: UK Registered Learning Provider:10025755
Note: About the Author Colin Thompson
Colin is a former successful Managing Director of Transactional/Print Manufacturing Plants, Print Management/Workflow Solutions companies and other organisations, former Group Chairman of the Academy for Chief Executives and Non-Executive Director, helping companies raise their `bottom-line` and `increase cash flow`. Plus, helping individuals to be successful in business and life in general. Author of several publications, research reports, guides, business and educational models on CD-ROM's/Software and over 400 articles published on business and educational subjects worldwide. International Speaker and Visiting University Professor.
Read more newly added articles, which you can add to, on NewsUSA-MyFeedPortal: http://newsusa.myfeedportal.com/i/libor-scandal <--- The Largest Scandal The World has Ever Seen - The LIBOR Scandal.
DDL: + 44 (0) 121 244 0306
Mobile: 07831 588310
Main T: + 44 (0) 121 244 1802
The Central Banker Problems!
Central Banker Problems