Why September Should Be Glowing for Gold

28-Aug (Bloomberg) — In today’s “Global Outlook,” Bloomberg’s John Dawson takes a look at gold prices on “On The Move Asia.” (Source: Bloomberg)

“Over the past 20-years, September has seen [gold's] best performance…”

[video]

Posted in Gold News, Gold Views |

ECB QE: will it happen and what next?

28-Aug (Financial Times) — Markets’ initial response to Mario Draghi’s Jackson Hole speech has been to inch up the probability that the European Central Bank will finally enact full-blown quantitative easing, or large-scale asset purchases, although the ECB president’s speech was sufficiently Delphic to cover a wide range of possibilities.

With valuations in some markets at record levels, particularly European government bonds, it is at least as important to consider how markets are likely to react if and when QE is announced, as it is to consider the likelihood of the announcement itself.

We were told at Jackson Hole that the ECB governing council would “acknowledge” that medium- and long-term market-implied inflation expectations are becoming unanchored; and Mr Draghi also expressed a new, softer stance on fiscal austerity.

But the governing council can hardly deny that markets are pricing in ever-lower inflation expectations. And rather than implying some sort of joint easing (fiscal stimulus matched with more monetary stimulus), the softer stance on austerity may be presented as a new additional reason for the ECB to hold off from full-blown QE.

[source]

Posted in Central Banks, Monetary Policy, QE |

The Daily Market Report: Don’t Think It Can’t Happen Again


28-Aug (USAGOLD) — Former Fed chairman Ben Bernanke is now saying that “September and October of 2008 was the worst financial crisis in global history, including the Great Depression.” This is a pretty significant paradigm shift, as most economists consider the financial crisis that began in 2007 as the worst financial crisis since the Great Depression.

Bernanke, prior to becoming the Fed chair, was a professor of economics and considered to be an expert on the Great Depression. His redefining of the severity of the financial crisis must be accorded due-credence. His words reveal just how close to the brink of economic catastrophe we came a few short-years ago.

Bernanke went on to point out that of the 13 “most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.” Had that happened, mayhem would have surely ensued, and not just in the United States, but around the globe.

So here we are seven-years later and we’re even more loaded to the gills with debt and the ‘too-big-to-fail’ financial institutions are now ‘too-bigger-to-fail’. Rather than pulling us back from the brink, policymakers like Bernanke left us on the brink and forced us up a very tall step-ladder.

In a recent interview, The Telegraph’s Ambrose Evans-Pritchard warned that we still have “all these structural issues. None of it’s resolved. And here we are back in the same position again, but worse, because the debt levels are higher.”

“The debt levels are now 275% in the rich countries and 175[%] in the emerging market countries. And that’s a record for both. So, we go into the next downturn even more stretched.” — Ambrose Evans-Pritchard

For some excellent insight on the historic linkage between debt and gold, be sure to read the latest Review & Outlook from our own Mike Kosares:

The interest rate trap. . . and what it means to the gold market

Be sure to sign up to receive Review and Outlook by email and never miss another issue.

As I’ve pointed out in recent commentary; cyclically speaking, we’re already overdue for the ‘next downturn’: Since the Great Depression, the U.S. has suffered thirteen recessions. The periods of economic growth between recessions have been as long as 120-months, and as short as 12-months. The average is just over 59-months.

The time elapsed since the Great Recession “officially” ended in June 2009 presently stands at 62-months. We’re due.

Despite some encouraging economic data from time-to-time — reminiscent of the “green-shoots” spring of 2009 and the “recovery-summer” of 2010 — Evans-Pritchard warns that “fundamentally the world is still stuck in this low-growth trap.” The CBO’s halving of its 2014 U.S. growth forecast, from 3.1% to 1.5%, is the most recent evidence of this.

The CBO says their renewed pessimism reflects “the surprising economic weakness in the first half of the year.” Apparently they see the 4.2% pace of growth in Q2 as somewhat of an anomaly. It doesn’t bode well for the second-half of the year.

After coming out of recession in Q2 of 2013, Europe may already be on the cusp of their next downturn. In Q2, Japan’s GDP plummeted to a -6.8% annualized pace. That’s a long way to come back in Q3 to avoid recession.

The real burning question is how will global policymakers react to the next crisis. The ECB is already under intense pressure to engage in BoJ/BoE/Fed-style quantitative easing, the legality of such measures be damned. Japan has already said it will escalate it’s asset purchases if need be.

Meanwhile, here’s the Fed, nearly done with tapering and trying to convince us that growth risks and labor market slack have been dealt with. The next step would be a rate hike, and there has been much speculation about when that might happen. Consensus seems to be running toward H1 2015. Yet even the Fed has adamantly proclaimed that their policy-path is data dependent.

A lot can happen between now and next summer. If the CBO’s growth expectations prove to be more accurate than the Fed’s, a rate hike would be difficult to justify with GDP below 2%. Also, if Europe and/or Japan go back into recession, there would likely be negative repercussions for the U.S. economy. This too may forestall ‘lift-off’ for an indeterminate period of time. Not to mention any number of possible geopolitical and black-swam events that might negatively impact global growth, or perhaps trigger the next crisis.

If anything, all the zero-rates, and trillions of dollars worth of liquidity operations and fiscal stimulus may have left us more vulnerable than we were before the last crisis. We’ve been pushed up that ladder on the precipice; a ladder than becomes increasingly unstable with every step up.

Don’t be lured into the belief that global policymakers have it all under control. Another financial crisis is indeed possible, and perhaps even probable given that core systemic issues that led to the last crisis have been ignored. That next crisis may well prove to be ‘the worst financial crisis in global history, including the Great Crisis of 2007-2008.’

Posted in Daily Market Report, Gold News, Gold Views |

U.S. Top Guns in Darwin Combat Drills as China Tensions Rise

28-Aug (Bloomberg) — In Australia’s remote top end U.S. fighter pilots are engaged in combat drills, while Marines sip beers at night in pubs in the tropical city of Darwin. Thousands of kilometers to the north, the U.S. finds itself in increasingly real standoffs with China’s air force.

…President Xi Jinping is restructuring the nation’s military, boosting the capacity of its air force and bolstering its naval presence, and the consequence for nations from the U.S. to its ally Japan is increased Cold War-style encounters.

China disputed the U.S. claims of the Aug. 19 incident which occurred off Hainan, saying its fighter pilot carried out a routine identification of two U.S. planes and kept a safe distance. The most serious encounter between a Chinese fighter and U.S. aircraft was an April 2001 collision with a Navy EP-3 surveillance plane that led to the death of a Chinese pilot and forced the U.S. aircraft to make an emergency landing on Hainan.

China was involved in close encounters with Japanese planes in disputed territory in the East China Sea in May and June, in two of their narrowest brushes since World War II, while Taiwan said two Chinese military planes entered its air defense identification zone on Aug. 25 and were intercepted by fighters.

[source]

Posted in Geopolitical Risks |

For Every Education Level, Real Wages Have Gone Down So Far This Year

27-Aug (Bloomberg) — Real hourly wages declined for almost every segment of the U.S. workforce in the first half of 2014, according to a briefing paper released Wednesday morning by the Economic Policy Institute, a liberal think tank.

“The last year has been a poor one for American workers’ wages,” economist Elise Gould, who directs EPI’s health policy research, writes in the report. Analyzing data from the government’s Current Population Survey, Gould found that workers at the 20th, 30th, 40th, 50th, 60th, 70th, 80th, 90th, and 95th percentiles all experienced declines (ranging from 0.5 percent to 2.0 percent) in their real wages in the first half of 2014 compared with the same period last year. Real wages declined among workers with no high school degree (0.6 percent), with just a high school degree (1.1 percent), with some college (1.0 percent), with a college degree (1.6 percent), and with an advanced degree, too (2.7 percent).

EPI contends that’s not a fluke: From the first half of 2007 to the first half of this year, real wages declined 4.9 percent for workers with a high school degree and 2.5 percent for workers with a college degree. Workers with advanced degrees registered an increase of only 0.2 percent over those seven years. “On the whole,” argues Gould, “the broad wage trends by education level over the last decade and a half make clear that wage inequality cannot be readily explained by stories about educational credentials and technology; wage inequality has increased steadily, yet even those with a college diploma or advanced degree have experienced lackluster wage growth.”

[source]

PG View: This is devastating news for an economy reliant on consumption and portends stagnant growth until the issue is meaningfully addressed.

Posted in Economy |

Safe-Haven Demand Boosts Gold as Russia-Ukraine Tensions Rising

28-Aug (Kitco News, via Forbes) – Gold prices are higher in early U.S. trading Thursday, on safe-haven buying interest, short covering and perceived bargain hunting. Geopolitics is back on the front burner of the market place as a three-day U.S. holiday weekend approaches. December Comex gold was last up $11.00 at $1,294.40 an ounce. Spot gold was last quoted up $10.90 at $1,294.00. December Comex silver last traded up $0.32 at $19.795 an ounce.

It’s a “risk-off” day in the market place Thursday following reports the Ukrainian president said the Russian military has invaded his country and is occupying eastern Ukraine towns and villages. There is reportedly ongoing fighting between the Russian and Ukraine armies. A Russian official denied that Russian troops are in eastern Ukraine.

[source]

Posted in Gold News, Gold Views |

Ukrainian President Says Russian Troops Have Crossed the Border

28-Aug (The New York Times) — Declaring that Russian troops had entered Ukraine, President Petro O. Poroshenko on Thursday canceled a planned visit to Turkey and convened a meeting of the national security council to focus on the “marked aggravation of the situation” in the southeast of his country.

The meeting of the national security council will focus on shaping a response, and Ukraine will also request a meeting of the United Nations Security Council.

Mr. Poroshenko made his comments as the leader of the main separatist group in southeastern Ukraine said that up to 4,000 Russians, including active-duty soldiers on leave, had been fighting against Ukrainian government forces, Russian television reported.

“There are active soldiers fighting among us who preferred to spend their vacation not on the beach, but with us, among their brothers, who are fighting for their freedom,” Aleksandr Zakharchenko, a rebel commander and the prime minister of the Donetsk People’s Republic, said in an interview on Russian state-run television.

[source]

Posted in Geopolitical Risks |

Gold up for 3rd day on softer dollar, Ukraine tensions

28-Aug (Reuters) – Gold rose for a third straight session on Thursday due to a softer dollar and equity markets as tensions between Ukraine and Russia ratcheted up, but the metal’s rebound could be short lived on prospects of a U.S. interest rate hike.

Gold gained 0.7 percent to $1,291.00 an ounce by 1001 GMT, holding above the 200-day moving average of $1,284 and heading for its first weekly gain in three. The metal has traded in a narrow range in the past few weeks with the spread between the month’s highs and lows at just under $50 an ounce, the smallest since August 2009.

“The metal rebounded today, testing the resistance around the $1,290 level because obviously the dollar is a bit softer and there has been some further skirmishes along the Ukraine-Russia border helping see some safe-haven buying,” Societe Generale analyst Robin Bhar said.

[source]

Posted in Gold News, Gold Views |

US initial jobless claims -1k to 298k in the week ended 23-Aug, below expectations of 300k, vs upward revised 299k in the previous week.

Posted in Economic Data |

US Q2 GDP (2nd report) revised up to +4.2%, above expectations of +3.9%, vs +4.0% initially and -2.1% in Q1.

Posted in Economic Data |

Gold higher at 1292.70 (+9.38). Silver 19.72 (+0.242). Dollar better. Euro lower. Stocks called lower. US 10yr 2.34% (-2 bps).

Posted in all posts |

The Daily Market Report: Gold Consolidates, Though Age of Easy-Money is Far From Over


27-Aug (USAGOLD) — Consolidative trading prevails in the gold market ahead of the long Labor Day weekend. The yellow metal remains contained within the recent range, just below $1300.

Despite evidence of a further decline in both business and consumer sentiment in Europe, which gives further credence to mounting speculation about ECB QE, the single currency is higher today. This has knocked the dollar index off another new 11-month high set overseas. Traders have noted the overbought nature of the greenback this week, suggesting a correction is past-due.

A sustained pullback in the dollar could offer further support for gold, which is modestly higher today. Yet another truce between Hamas and Israel and talks between Ukraine and Russia have perhaps eased geopolitical risks somewhat. However, there is little suggest either situation is close to being resolved.

The CBO has cut their 2014 U.S. GDP forecast in half, from the +3.1% they estimated in February, to just 1.5%. The CBO also noted that while the deficit will fall to $506 bln for the fiscal year ending in September, the total debt — currently at $17.7 trillion — continues to grow. The CBO predicts that the national debt will grow by an additional $7.2 trillion over the next ten-years, an increase of nearly 41%.

For great insight into what that ever-increasing debt load means for the gold market, be sure to read the latest Review & Outlook from our own Mike Kosares:

The interest rate trap. . . and what it means to the gold market

On top of weaker growth expectations, a recently released report suggests that the official unemployment rate “understates the extent of economic pain in the country today.”

A new academic paper suggests that the unemployment rate appears to have become less accurate over the last two decades, in part because of this rise in nonresponse. In particular, there seems to have been an increase in the number of people who once would have qualified as officially unemployed and today are considered out of the labor force, neither working nor looking for work. – The New York Times

Despite all the speculation about a U.S. economic recovery and the timing of that first interest rate hike, things may in actuality be far worse than we are being led to believe. ‘Lift-off’ may in fact still be years away and the return of QE may become a hot-topic of conversation even before the current QE regime is fully wound down in October.

There is no doubt that Europe is once again on the brink of recession. Additionally, Japan may need further stimulus to goose its sputtering economy. The age of über-accommodative monetary policy is probably far from being over. In such an environment, I just don’t see a significant push toward a divergent (tighter) policy by the Fed.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

2008 Meltdown Was Worse Than Great Depression, Bernanke Says


26-Aug (The Wall Street Journal) — Former Federal Reserve Chairman Ben Bernanke, a prominent student of the Great Depression, contends that the 2008 financial crisis was actually worse than its 1930s counterpart.

Mr. Bernanke is quoted making the statement in a document filed on Aug. 22 with the U.S. Court of Federal Claims as part of a lawsuit linked to the 2008 government bailout of insurance giant American International Group Inc.AIG +0.16%

September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” Mr. Bernanke is quoted as saying in the document filed with the court. Of the 13 “most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.”

Former Treasury Secretary Timothy Geithner is quoted in the document offering a similarly apocalyptic assessment. From Sept. 6 through Sept. 22, the economy was essentially “in free fall,” he said.

[source]

PG View: The comments of Bernanke and Geithner reflect just how close we came to the brink 6-years ago. Knowing this, it could prove more difficult for policymakers to pull us back from the brink the next time it happens.

Get some gold.

Now.

Posted in Economy |

QE: New York Fed purchases $1.031 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

Japan’s growth outlook dims further, BOJ policy prospects unclear – Reuters Poll

27-Aug (Reuters) – Japan’s economic outlook has dimmed further and inflation is stalling but analysts in a Reuters poll were split on whether the central bank would ease policy this year or wait until 2015 to try and revive growth.

While a gradual recovery looks likely, an April sales-tax increase which pushed the economy in the second quarter into its deepest fall since the 2011 earthquake and tsunami had economists downgrading growth forecasts amid an anaemic rise in wages and lacklustre exports.

All the analysts in the monthly Reuters survey, taken in the past week, said the Bank of Japan would fail to hit its 2 percent inflation target before April and most said the BOJ would therefore ease further – although they were unsure on the timing.

[source]

Posted in Central Banks, Economy, Monetary Policy |

Gold edges higher as dollar retreats, equities steady

27-Aug (Reuters) – Gold prices rose towards $1,285 an ounce on Wednesday, recovering further from the previous week’s two-month low, as stocks took a breather after a 2-1/2 week rally and the dollar index retreated from 13-month highs.

Spot gold was up 0.3 percent at $1,284.90 an ounce at 1141 GMT, extending a recovery from last week’s low at $1,273.06, while U.S. gold futures for December delivery were up 70 cents an ounce at $1,285.90.

Soft German economic data and corporate results helped arrest a rally in stocks, which had climbed 6 percent since Aug. 8, while the dollar index eased 0.2 percent after hitting its highest in more than a year in earlier trade.

“The dollar looks strong, but very overbought,” Saxo Bank’s head of commodity research Ole Hansen said. “Short term, I think gold could build a bit further on the rejection at 1271, looking for a move back up towards 1296 or even 1302, but not higher.”

[source]

Posted in Gold News, Gold Views |

Gold higher at 1286.46 (+5.46). Silver 19.47 (+0.083). Dollar easier. Euro higher. Stocks called better. US 10yr 2.37% (-2 bps).

Posted in all posts |

The interest rate trap. . . .

. . . . and what it means to the gold market

by Michael J. Kosares

The September edition of Review & Outlook explores the impact of rising interest rates on the government’s fiscal position with some surprising, perhaps shocking, conclusions.

Review & Outlook, September 2014

“The continuing inability of the U.S. federal government to come to grips with its fiscal problems largely explains the enduring, some would say stubborn, presence of gold coins and bullion in millions of investment portfolios around the world – including those of central banks, hedge funds and sovereign wealth funds. Until such time as fiscal rectitude takes hold in the halls of Congress — an unlikely proposition any time soon – current gold owners are likely to hold tight and new gold owners are likely to continue joining their ranks.  In the end, contemporary gold owners by and large do not own gold to become wealthy, but to protect the wealth they already have.”

 

Posted in all posts |

The Daily Market Report: Gold Firms on Heightened Safe-Haven Demand


26-Aug (USAGOLD) — Gold rebounded within the range in overseas trading on Tuesday, amid heightened worries about the health of the European economy. The yellow metal was up more than 1% at one point intraday, before easing modestly after a round of generally positive U.S. data.

The ECB is under intense pressure to pay a little more than lip-service to growth risks and deflationary pressures when they meet next week. Mario Draghi hinted in Jackson Hole that more accommodations would likely be forthcoming. Moving incrementally toward the zero-bound on the refi rate and tinkering around the fringes of QE has not been effective thus far. The market seems to want — and indeed seems to be expecting — something big.

This is evidenced by the ridiculously low bond yields seen across the eurozone, relative to risks. Investors are buying bonds because Draghi pledged two-years ago to do “whatever it takes” to preserve the euro and has repeatedly said he stands ready to do more in the near-term.

Make no mistake, Draghi likes the current downward trajectory of the euro. He would surely like to continue nudging it lower to make European exports cheaper. With the single currency trading more than 10% above the ‘sovereign debt crisis’ low of 1.1876, there’s certainly room for movement.

The disturbing trend is in prices. At the time of the ‘whatever it takes’ pledge, eurozone inflation was running around 2.5%. Presently inflation is at a mere 0.4%. That trend is enough to unnerve any central banker, as they view deflation as the greatest threat of all.

The weak euro is providing buoyancy to the dollar. Things aren’t exactly rosy here on our side of the Pond, but we’re a far-sight better off than Europe at this point. While the relative strength of the dollar may be limiting the upside in gold, growing global economic uncertainty and expectations of further monetary accommodations from Europe (and quite possibly Japan as well) will likely heighten demand for safe-havens, the safest of which is gold.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

QE: New York Fed purchases $2.275 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

Gold Sees Short-Covering Bounce, Bargain Hunting

26-Aug (Kitco News, via Forbes) – Gold prices are moderately higher in early U.S. trading Tuesday, on some bargain hunting and short covering following recent selling pressure. December Comex gold was last up $9.70 at $1,288.50 an ounce. Spot gold was last quoted up $11.00 at $1,287.75. December Comex silver last traded up $0.199 at $19.63 an ounce.

The market place was quieter overnight and could remain subdued the rest of this week, ahead of the unofficial end of summer that comes with the approaching U.S. Labor Day holiday weekend.

One underlying theme early this week is the rallying U.S. dollar index and slumping Euro currency. The comments from European Central Bank president Mario Draghi late last week in Jackson Hole, Wyoming, are concerning to many market watchers. Draghi strongly hinted the ECB is set to implement more monetary stimulus measures to prop up the flagging European Union economy—and to ward off the threat of deflation in the bloc. The state of the EU’s economy is prompting some increased demand for safe-haven assets. German bonds are hovering near record-low yields, while U.S. Treasury yields have also dropped significantly recently. Safe-haven gold is also seeing a good bounce Tuesday morning. With this increasingly interconnected world, it’s hard to imagine other major world economies being healthy when the European Union’s is so sickly. This notion is a underlying bullish factor for gold.

[source]

Posted in Gold News, Gold Views |

US consumer confidence rose to 92.4 in Aug, above expectations of 88.8, vs negative revised 90.3 Jul.

Posted in Economic Data |

Gold up around 1 pct as dollar rally pauses; U.S. data eyed

26-Aug (Reuters) – Gold jumped 1 percent on Tuesday after a pause in dollar and equity market rallies prompted a break above $1,280 an ounce that triggered chart-based buying, but anticipation of buoyant U.S. data could temper interest.

Spot gold hit a session high at $1,290.80 an ounce in early trade as stop orders were triggered on a break of the 200-day moving average just above $1,280. Buy stop orders are automatic orders placed at pre-set levels to gain momentum if prices rise.

Prices rebounded from a two-month low of $1,273.06 on Aug. 21 on speculation of an eventual increase in U.S. interest rates to trade up 0.8 percent at $1,286.56 by 1146 GMT, while U.S. gold futures rose $8.80 an ounce to $1,287.60.

[source]

Posted in Gold News, Gold Views |

US S&P/Case-Shiller home price index (20-cities) +0.94% in Jun to 172.3, in line with expectations, vs upward revised 170.7 in May.

Broader index -0.2%, on expectations of unch, for second consecutive monthly decline.

Posted in Economic Data |

Israel destroys 2 Gaza high-rises in escalation

26-Aug (AP, via Denver Post) — Israel bombed two Gaza City high-rises with dozens of homes and shops Tuesday, collapsing one building and severely damaging the other in a further escalation of seven weeks of cross-border fighting with Hamas.

In the past, the military has hit targets in high-rises in pinpoint strikes, but left the buildings standing. However, since Saturday, it has toppled or destroyed five towers and shopping complexes in an apparent new tactic aimed at increasing pressure on the Hamas militant group.

The objects of the latest strikes contain apartments inhabited almost exclusively by middle-class Gazans, who up until now have been largely spared the considerable dislocation that has affected tens of thousands of other residents in densely populated neighborhoods of the coastal strip, like Shijaiyah.

That has raised the possibility that the Israeli military is trying to use better-off Gazans, like professionals and Palestinian authority employees, to put pressure on Hamas to end the fighting on Israel’s terms.

[source]

Posted in Geopolitical Risks |

Russian Gold: Central Bank’s Reserves Rise


26-Aug (The Wall Street Journal) — The central banks of Russia and Kazakhstan continued to boost their gold holdings in July, suggesting emerging markets remain committed to bolstering their reserves of the precious metal despite a pullback in its value.

Russia, one of the world’s biggest holders of gold, increased its official reserves by nearly 340,000 troy ounces in July, to 35.5 million ounces, according to data Tuesday from the International Monetary Fund.

Kazakhstan’s central bank, which has also become an active buyer of gold in recent years, raised its official reserves by 45,000 ounces last month, to 5.1 million ounces, according to the data.

Central banks, largely in developing economies, have increased their gold holdings over the past few years as debt crises have put pressure on reserve currencies such as the U.S. dollar and the euro.

[source]

Posted in Gold News, Gold Views |

US durable goods surge 22.6% in Jul on Boeing, well above expectations of +5.5%, vs positive revised +2.7% in Jun. Ex-trans -0.8%.

Posted in Economic Data |

Gold higher at 1290.00 (+13.91). Silver 19.66 (+0.294). Dollar firm. Euro weak. Stocks called higher. US 10yr 2.38% (-1 bp).

Posted in all posts |

Ukrainian president dissolves parliament and announces early elections in October

25-Aug (AP, via US News and World Report) — Ukraine’s president has dissolved parliament and called for early elections in October as his country continues to battle a pro-Russian insurgency in its eastern regions.

President Petro Poroshenko announced in a statement posted on his website Monday that he has dissolved parliament and called for snap elections on October 26.

He said the move was in coherence with the Ukrainian constitution, noting that the ruling coalition collapsed several weeks ago.

[source]

Posted in Geopolitical Risks, Politics |

Central banks to lawmakers: You try growing the economy

25-Aug (Washington Post) — After years of bold action following the global financial crisis, the world’s central bankers are ready to pass the baton.

The consensus at the annual gathering of these stewards of the economy this year was that the power of monetary policy to drive global growth is nearing its limit. Further progress will now depend on whether government leaders are willing to step up to the plate.

“The only conclusion that we can safely draw, in my view, is that we need action on both sides of the economy,” European Central Bank President Mario Draghi said in a speech at the conference, which is hosted by the Federal Reserve Bank of Kansas City and wrapped up on Saturday. “Only if the strategy is truly coherent can it be successful.”

The normally staid world of monetary policy entered the spotlight during the financial crisis when central bankers slashed interest rates, pumped trillions of dollars into the financial system and exercised broad authority to rescue failing institutions. Their actions were unprecedented and untested – and largely credited with staving off a global depression.

But averting disaster is not the same as ensuring growth. The global economy is forecast to expand 3.4 percent this year, less than previously expected. Inflation in some countries remains dangerously low. The job market in advanced economies is still not fully healed.

[source]

PG View: If the central banks really plan on passing the baton off to politicians, you can almost bank on said-baton being dropped.

Posted in Central Banks, Monetary Policy, Politics |