A Twisted Tale Of De(Leveraging)

A Twisted Tale Of De(Leveraging)

Notwithstanding the merits of debt

Given the tepid global growth prospects, it is clear now that most of major central banks will be holding onto their easy money stance in near term. While the US Fed is sole candidate to take a step in the other direction, it is becoming increasingly clear that the rest of the world is still suffering from the great financial crisis. Even for the Fed, it will not be an easy task to undo the QE driven monetary excesses of the last half a decade.

http://www.alternet.org/economy/paul-krugman-how-simple-minded-analogy-has-wreaked-havoc

http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging

Quantitative Easing: Strange To See US Warning Against Competitive Devaluation Of Currencies!

Interesting to see the US warn the rest of the world that it will "push back very hard" against countries that target weaker exchange rates to gain an unfair trade advantage, Treasury Secretary Jack Lew said on Thursday, driving home concerns he expressed to the Group of 20 this week. In an interview with NDTV Profit, Lew drew a distinction between policies of quantitative easing, which seek to stimulate credit and growth, and those targeting the exchange rate to gain an "unfair trade advantage".

"We have been clear, that kind of unfair policy is something that we will oppose and we will push back very hard on," Lew told the financial news channel.

Here's what he said in detail...http://in.reuters.com/article/2015/02/12/india-usa-economy-idINKBN0LG0BT20150212


The comments from Lew are coming out on an interesting day… 

The Swedish central bank as introduced negative repo rates today. the bank stated that there are signs that underlying inflation has bottomed out, but the situation abroad is now more uncertain and this increases the risk that inflation will not rise sufficiently fast. The Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.10 percentage points, to -0.10 per cent, and to adjust the repo-rate path down somewhat.

The Bank Of England has noted today that it sees UK headed for a deflation in coming times. Bank of England has warned UK inflation rate will slip into negative territory soon even as it upgraded the economy's growth forecasts on strong underlying dynamics. The bank noted that it more likely than not that headline inflation would turn negative this year. In such a scenario, it would consider cutting interest rates and doing more quantitative easing.

Earlier in the day, the People's Bank of China officials reported that China is facing the risk of deflation as weak domestic demand continues to hinder economic growth. "In the medium term, the biggest uncertainty is from the risk of deflation as well as expectations of deflation," Lu Lei, director of the PBOC's research bureau, said in an article published recently on a private think tank's website.

While it is indeed ironic that the US wants the rest of the world not to follow the QE path, the stressed economies have no other option left given the tumultuous economic scenario. Commodities are in a persistent downward swoon and the US dollar is near its highest levels in 11 years. This is making the race for a secular and synchronized devaluation in global currencies even more intensifying.  The US central bank expanded its Balance Sheet by five times in last six years and nine times since the dotcom bust. The US, it seems wants the rest of the world to do as it says rather than doing what it does!