Reuters Photojournalism
Our day's top images, in-depth photo essays and offbeat slices of life. See the best of Reuters photography. See more | Photo caption
Sponsored Links
Growth vs. inflation debate sharpens
Traders work on the floor of the New York Stock Exchange April 20, 2012.
Credit: Reuters/Brendan McDermid
LONDON |
LONDON (Reuters) - Two key central bank meetings and a string of big data releases in the coming week should sharpen the debate over slowing growth and rising inflation risks, and may shake the markets out of the doldrums which followed a bumper first quarter for asset prices.
The U.S. Federal Reserve's monetary policy committee will update its economic forecasts for the first time since January at its mid-week meeting, when no policy change is expected but where recent indicators have disappointed investors.
While the Bank of Japan is seen as likely to ease its policy further at a meeting on April 27 after coming under intense pressure to help support the still fragile economy.
The meetings come after two other central banks, the Bank of England and Bank of Canada, last week surprised markets with more hawkish statements suggesting it was less likely they would need any more monetary policy stimulus.
"We're at a point where the nexus of the risks between growth and inflation might get more interesting over the next couple of months," said Ned Rumpeltin, head of G10 FX strategy for Standard Chartered Bank.
After a wave of policy easing measures earlier this year led by the Federal Reserve and including a huge 1 trillion euro injection of liquidity by the European Central Bank, there are some signs that growth has stabilized leaving room for monetary authorities to give more weight to inflation risks.
Earlier this month Singapore said it will tighten monetary policy slightly because of persistent inflationary pressures, while Australia's central bank opened the door for a rate cut in May when it held rates steady.
The Reserve Bank of New Zealand holds its rate setting meeting on April 26 where rates are expected to remain unchanged but inflation concerns could feature in the accompanying statement.
At the centre of the concerns are oil prices with Brent crude currently at an average price of about $118 barrel for the year to date, which if it is maintained for 2012 as a whole would be a record.
FUND VIEWS SHIFT
Many institutional investors have also been gradually raising their expectations for inflation, according to the latest Bank of America Merrill Lynch survey of fund managers.
Global inflation expectations rose to nine month highs in the survey conducted in the week to April 12.
"It's not at anything like alarming levels at this point, but what it does do is reinforce the message that there is very little love for bonds at current levels," said Gary Baker, European equity strategist at BofA Merrill Lynch.
Overall global growth is still seen as subdued by most economists with weakness in euro zone and a relatively slow U.S. recovery leaving Asia as the main driver.
A Reuters poll of more than 700 economists across the world, taken in the past week, predicted a modest 3.3 percent growth in the global economy this year, unchanged from a poll taken three months ago.
GDP DATA
In the coming week the United States and Britain will unveil their preliminary estimates of first quarter growth.
The U.S. economy is expected to grow at an annual rate of around 2.5 percent in the first three months of the year down from 3.0 percent record in the final quarter of 2011.
Britain's economy is much weaker with GDP falling by 0.3 percent in the final quarter of last year and a fairly anemic growth of 0.1 percent expected in the first three months of 2012. However, if economists' forecasts are missed and a negative number results, the country will technically be in recession.
In the markets a general scaling back in growth forecasts and the return of concerns over euro area government finances have largely ended the rally in risk assets that marked the first quarter.
World equities have seen about 5 percent wiped off the gains to the end of March, leaving global stocks .MIWD00000PUS up about 8.5 percent for the year, with emerging markets and the share markets of Spain and Italy underperforming.
In the foreign exchange market, the shifts have seen one-month volatility of the euro's exchange rate to the dollar drop to levels not seen since before the Lehman crisis, reflecting a view that swings in the common currency in the near term are likely to be very low.
Volatility as indicated by the VIX index (a popular measure of the implied volatility of S&P 500 index options) has rapidly declined since the end of 2011 to hit historic lows last month, though it has kicked up a bit lately as the U.S. economic data has surprised.
It may be time for volatility to pick up further.
(The story was refiled to clarify the poll in para 14 is a Reuters poll)
(editing by Ron Askew)
- Tweet this
- Link this
- Share this
- Digg this
- Reprints
What few people seem to realize is that, if Bernanke had simply bailed out the banks (initially and with the continuing QE programs) the “good old fashioned way” by simply printing money, the US economy would probably look like the Wiemar Republic of Germany during its hyperinflation heyday.
What Bernanke has done, thanks to more modern methods, is to simply provide the same effect without the apparent inflation by creating debt instead of money.
This debt has been used by the banks to expand their investments in third-world countries at our expense, but without any apparent inflation here at home.
Basically, we have exported inflation to the third-world countries, instead of absorbing it in the US economy, which would have been devastating.
The problem is that at some point this exported inflation will have to come home and the US will experience a bout of severe inflation as we are forced to pay down the debt and repatriate dollars.
This will happen because the US economy is not growing.
The US economy is not growing primarily because the US is serving simply as a conduit for channeling investment money through the banks to third-world countries, all so the banks can enjoy higher profits they could not possibly achieve if they invested that money in the US economy.
This is the sole reason why the US stock markets have risen from the dead like Lazarus after their 2008 bubble burst. For example, the DOW crashed at 14,100 in 2008, but now in 2012 is already back at 13,000 + and nearing its all-time high again.
There is no other rational reason for this miracle comeback for the banks except for the scenario I proposed. The US stock markets are no longer a reflection of the health of the US economy, but that of the third-world economies.
Given the state of the US economy, there is no other rational explanation to account for this comeback in profitability, except as I said they are simply taking the money and investing it anywhere but here as they should be doing. If they did that, the markets would not be nearly as high as they are now. But the US economy might well be on the road to recovery already. As it is now, the US economy will never recover.
This is the major reason why the 1% versus 99% split in wealth is occurring. The wealthy are prospering by investing in third-world economies instead of the US economy. This is why their wealth is growing and the US economy is stagnating. It is all at the direct expense of the 99% of the American people. The real irony is that the 99% are financing the growth in wealth of the 1% (i.e. they are using our money, free of charge and taxes to become wealthier) — through the continuing bank bailouts with taxpayer money that is stacking up rapidly as debt for the 99%.
This is the real problem with the present continuing bank bailout plan.
Without any restrictions whatsoever on the use of the money, the banks have simply chosen to invest elsewhere, thus costing the US the jobs it desperately needs for recovery. In domino fashion, it is also why the housing sector will never recover as long as the present system continues, because the housing market is driven by jobs and without jobs there can be no housing market. And if you fall behind on your payments the wealthy bankers seize your property and transfer the debt to Fannie or Freddie (i.e. the US taxpayer) so they take no losses at all, but still sell the house for market value to increase their profits. This provides the banks with a powerful incentive to foreclose on homeowners. They not only get to write-off the debt and charge it to the government (taxpayers), but also to keep the house and sell it for profit. Now, that is a hell of a deal, and all at taxpayer expense.
Everything you see in this economy is a very vicious circle that benefits only the wealthy at the expense of everyone else. Yes, the truth is as simple as that.
That is the good news. The bad news is that the $15.6 trillion in debt (just like a credit card) must be paid off before too long because the bond market will begin the same process here as they have already in the eurozone (i.e. demanding a reduction in our lifestyle). When the debt begins to be paid off it must be released into the US economy, thus driving up prices due to its inflationary effect. It will flood the US economy with liquidity that has nowhere to go — the same effect as if Bernanke had been printing money all along.
We desperately need to stop what we are doing for monetary policy — that is, giving the banks free money to spend as they choose with no strings attached — because it will only result in the US suffering from massive inflation, or worse hyperinflation down the road. That will result in the US economy crashing into another Great Depression. It is the inevitable result of what we are doing now.
Simply cutting back on spending as the wealthy want to do will not save this economy. It will only exacerbate our problems. What we need is revenue to survive. This must be from both internal (i.e. higher taxes) and external (i.e. bringing manufacturing jobs home again) sources. One without the other will not succeed.
This would require the US Congress to reverse most of the favorable trade and tax legislation enacted over the past 30+ years that forms the basis for this declining economy, which is how the problem began in the first place. Also, much stricter bank regulations (e.g. similar to that enacted during the Great Depression that was specifically designed to curb the banking excesses of the 1920s that was responsible for the 1929 stock market crash).
Only by completely halting the flow of debt-driven capital out of the country and by reestablishing our revenue flows to what they used to be will the US economy survive. Only then should we begin to cut back on our profligate spending, but not before. This is our only chance at a “soft landing”, and it is a slim one at best.
No one in the wealthy-driven government is telling the American people the truth about what is happening, why it has happened, and what needs to be done to solve the problem. To do so, would gore their own own “sacred cow” of greed, and they are not likely to ever do that. We must begin to think for ourselves before it is too late (if it isn’t already past the point of no return that is).
The thing for the American people to understand is that this is not rocket science. You don’t even have to remotely understand what I have explained above as to what is causing our problems. All you need to do is to realize this country is in serious financial trouble and simply “follow the money” to see who is benefiting from it. Then be willing to take appropriate action to stop it.
Follow Reuters