For those that thought global central banks were in control of the world’s economy comes the sobering news that the various quantitative easing programmes and global currency wars may be about to get even more radical. The new chief economist of the IMF said in an interview this week that persistent low growth and the risk of the deflation may mean global central banks need to start thinking about radical new ideas to kick-start inflation.
Mr Maurice Obstfeld was speaking before an IMF research conference that was looking at unconventional monetary policies. “I worry about deflation globally,” he said “It may be time start thinking outside the box”.
Which is a worry because the unprecedented money printing and currency devaluations that have been employed to stave off deflation and generate increased economic activity was seen as untried and radical. There was no ‘plan B’ so to speak. The IMF comments are the closest thing YieldReport has heard from an institution like the IMF, to admitting that the policies may not have worked.
An increasing number of countries are seeing lower inflation, falling growth and investment. With aggregate demand weak, commodity prices falling, rising government debt and slow consumer spending, the limits of zero or even negative interest rates are slowly becoming apparent. The trillions in government debt has not generated the growth and inflation that was forecast and has largely found its way onto bank balance sheets and subsequently into asset prices. The road ahead is paved with uncertainty.