There is no doubt that Central Banks painted themselves into a corner - they have made it impossible to raise interest rates, regardless of inflation. Why? Because if they do, it will cause an unprecedented deflation in asset prices and bring consumer spending to its knees, as disposable income is siphoned away to service debt service costs that could double or worse. It would cripple consumer demand and confidence, in a horrifying way with these double knock-out financial blows, triggering a deep prolonged depression. Moreover, obliterating the balance sheets and capital boxes of the world's biggest commercial and investment Banks, with the mere stroke of a pen.
What this also means is that governments will do all they can do to manipulate inflation numbers to fool consumers, investors and savers. Time will tell if this form of quiet debasement, confiscation and taxation will work. Probably, because all Central Banks are moving in a similar co-ordinated step - and there are no other planets offering better rates and liquidity. So far!
The big point being - is how did everyone manage to get into the same no-escape situation that Japan has been in for the past two and a half decades? We have some answers, but we will leave them for another time. Meanwhile, we concur with Marc insofar as we should get use to the QEs for a long, long time. Pretty boring stuff.
First Financial Insights
July 2, 2013