Monday, December 7, 2015

7/12/15: Of Monetary Activism and Growth: CB Balancesheets vs Economies Balancesheets

There is much talk around two matters relating to the monetary policy expectations:

  1. The 'normalisation' course allegedly pursued by the Fed (rates rises); and
  2. The justification for (1) by references to the monetary policy-repaired economy, made wholesome once again thanks to the Central Banks' activism (see recent Janet Yellen speech on the subject here)
Except, of course, the second point is... err... questionable. For all the estimates of percentage points of growth uplifts and unemployment reductions delivered by the Fed-linked economics analysts, there are two simple facts stubbornly persisting out there:

Fact 1: U.S. (and European, and Japanese, and global) growth since the end of the Great Recession has been much slower than historical records for recoveries suggest; and

Fact 2: Fact 1 comes on foot of a historically unprecedented monetary expansions, that are, by far, not over yet.

Here are two charts on the second fact:

Now, observe: as of today, Big 4 CB balancesheets expanded almost 4-fold. By the end of 2017 (per BAML), projected balancesheets are expected to rise even further, by more than 4.5-fold. Both BOJ and ECB will be leading this latter stage of monetary easing - the two economies that are by far fairing the worst throughout the crisis, despite the fact that whilst the ECB adopted a more conservative stand in the earlier stages of the crisis, BOJ raced ahead of everyone else with Abenomics arrival.

In other words, since 2012 through 2015, CB balancesheets grew by more than 50 percent. Meanwhile, what happened to growth rates and growth expectations?

Which, sort of, suggests that all this 'normalisation' of growth under the monetary policies activism is... well... imaginary?..

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