Global money-printing signals economy in freefall

By Art Moore

(U.S. Department of Defense photo)

The policy of quantitative easing – otherwise known as “printing” money – is being employed worldwide at a record-breaking pace, signaling to many analysts that the global economy is in freefall.

Central banks are spending $200 billion a month pumping money into their economies, buying bonds as a pace even higher than during the worst of the financial crisis in 2008, reports the digital global business news publication Quartz.

The emergency measure, however, doesn’t seem to be helping, with low growth persisting while interest rates hover near zero.

In the U.S., the Federal Reserve policy of printing money to buy Treasury Department-issued government debt began under President George W. Bush and accelerated under President Obama.

A chart produced by the Federal Reserve Bank of St. Louis shows the adjusted monetary base of the United States rose from $1.772 trillion on Jan. 14, 2009, to $3.996 trillion on March 16, 2016.


As WND reported in April 2014, the Fed pumped its balance sheet with more than $4 trillion of purchases of U.S. Treasuries and other federal government bonds. QE grew to a level of $85 billion a month under the previous Fed chairman, Ben Bernanke.

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The concern is that, unlike in 2008, central banks worldwide have “run out of ammunition.”

The solution in 2009 was to increase debt, putting the Obama administration on a course to double the amount of U.S. national debt from approximately $10 trillion when President George W. Bush left office in 2009, to $20 trillion when President Obama is scheduled to leave in January.

The decision in February by central banks in the European Union and Japan to resort to negative interest rates was seen by many financial analysts as a crossroads.

Federal Reserve Chairman Janet Yellen told the Senate Banking Committee in February that the Fed would not “take off the table” the possibility of joining the European Central Bank and the Bank of Japan in implementing negative interest rates in an effort to stimulate borrowing.

“We had previously considered them and decided that they would not work well to foster accommodation back in 2010,” Yellen told the Senate committee in February. “In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.”

Last December, the Fed raised benchmark U.S. interest rates for the first time in nearly a decade with the expectation of continued increases in 2016. But the rates have remained frozen in response to the slowdown in China’s economy and financial market turmoil.

Negative interest rates essentially mean the customer must pay to keep money on deposit at a bank.

The same principle applies to banks. If rates were a negative 10 percent, for example, a bank keeping $1 million on deposit with a central bank would have to pay $100,000 for the privilege. Similarly, for bonds, a negative 10 percent interest rate would mean an investor buying a bond and holding it to maturity would get back only 90 percent of his money.

“One does not require a Ph.D. in economics to recognize [negative interest rates] as an unnatural distortion that will create more problems than it solves,” said John Browne, a senior economic consultant to Euro Pacific Capital.

Central banks deciding to implement a Negative Interest Rate Policy, known as NIRP, are considered desperate. Negative interest rates are rare and never have been tried in a region as large as the Eurozone. Even during the Great Depression of the 1930s, U.S. interest rates were never negative. And during the height of the global financial crisis in 2008, some U.S. Treasury bill yields only briefly fell below zero.

Removing urgency

Last week, in response to the economic fallout of the U.K. vote to leave the European Union, the Bank of England cut its benchmark rate to a new all-time low of 0.25 percent, from 0.5 percent.

Quartz reported the Bank of Japan and the European Central Bank are the biggest contributors to the current bond-buying spree.

The Bank of Japan is spending about $96 billion monthly and the Bank of England $88 billion.

Quartz noted that central bankers insist their stimulus measures are only meant to buy governments time to enact more lasting reforms. But government policies will only dampen growth in the next year, according to JPMorgan analysts in a recent research note. They point out that this was also the case between 2010 and 2015.

Jörg Krämer, chief economist at Commerzbank, Quartz reported, said QE has pushed down yields on government bonds, removing any sense of urgency by enabling nations to borrow for less than ever before.

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