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24 Jun 2013
BIS to QE practices: 'enough is enough'
FXstreet.com (Barcelona) - The Bank of International Settlements warned over the weekend that stimulatory monetary measures should start to be heading for the exits, and a more normalized approach to policies should be seen from now on.
Below, readers can find a comprehensive summary of the BIS’ 204-page Annual Report warning against continued monetary stimulus by central banks. The summary is part of a speech by the BIS general manager, Jaime Caruana.
As is well known, inflated fundamentals courtesy of 'cheap money' pumped into the system - from the US to Japan passing through Europe -, have contributed to central bank balance sheets roughly doubled since the Global Financial Crisis (GFC) hit back in 2008. Now the central bank balance sheets stand at around $US20 trillion from $US10 trillion.
From the BIS: "Since the beginning of the financial crisis almost six years ago, central banks and fiscal authorities have supported the global economy with unprecedented measures. Policy rates have been kept near zero in the largest advanced economies. Central bank balance sheets have doubled from $10 trillion to more than $20 trillion. And fiscal authorities almost everywhere have been piling up debt, which has risen by $23 trillion since 2007. In emerging market economies, public debt has grown more slowly than GDP; but in advanced economies, it has grown much faster, so that it now exceeds one year’s GDP."
The BIS argues that ultra-easing policies produce “the build-up of financial imbalances”, and further “misallocation of capital”, and it believes that “central banks cannot repair the balance sheets of households and financial institutions, they cannot ensure the sustainability of fiscal finances”.
Below are additional abstracts from the BIS report:
"Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Hence, central banks must manage a return to their stabilisation role, allowing others to do the hard but essential work of adjustment."
"Many large corporations are using cheap bond funding to lengthen the duration of their liabilities instead of investing in new production capacity."
"Continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system…"
"Extending monetary stimulus is taking the pressure off those who need to act. In the end, only a forceful programme of repair and reform will return economies to strong and sustainable real growth…"
"Overindebtedness is one of the major barriers on the path to growth after a financial crisis. Borrowing more year after year is not the cure…in some places it may be difficult to avoid an overall reduction in accommodation because some policies have clearly hit their limits."
Below, readers can find a comprehensive summary of the BIS’ 204-page Annual Report warning against continued monetary stimulus by central banks. The summary is part of a speech by the BIS general manager, Jaime Caruana.
As is well known, inflated fundamentals courtesy of 'cheap money' pumped into the system - from the US to Japan passing through Europe -, have contributed to central bank balance sheets roughly doubled since the Global Financial Crisis (GFC) hit back in 2008. Now the central bank balance sheets stand at around $US20 trillion from $US10 trillion.
From the BIS: "Since the beginning of the financial crisis almost six years ago, central banks and fiscal authorities have supported the global economy with unprecedented measures. Policy rates have been kept near zero in the largest advanced economies. Central bank balance sheets have doubled from $10 trillion to more than $20 trillion. And fiscal authorities almost everywhere have been piling up debt, which has risen by $23 trillion since 2007. In emerging market economies, public debt has grown more slowly than GDP; but in advanced economies, it has grown much faster, so that it now exceeds one year’s GDP."
The BIS argues that ultra-easing policies produce “the build-up of financial imbalances”, and further “misallocation of capital”, and it believes that “central banks cannot repair the balance sheets of households and financial institutions, they cannot ensure the sustainability of fiscal finances”.
Below are additional abstracts from the BIS report:
"Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Hence, central banks must manage a return to their stabilisation role, allowing others to do the hard but essential work of adjustment."
"Many large corporations are using cheap bond funding to lengthen the duration of their liabilities instead of investing in new production capacity."
"Continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system…"
"Extending monetary stimulus is taking the pressure off those who need to act. In the end, only a forceful programme of repair and reform will return economies to strong and sustainable real growth…"
"Overindebtedness is one of the major barriers on the path to growth after a financial crisis. Borrowing more year after year is not the cure…in some places it may be difficult to avoid an overall reduction in accommodation because some policies have clearly hit their limits."