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Posts Tagged ‘central banks’

Global Economy Increasingly Vulnerable To Another Financial Shock

October 4th, 2015 Comments off

Seven years after the outbreak of the global economic and financial crisis, there are growing indications that the temporary solutions that were largely imposed through monetary policy by central banks are becoming increasingly ineffective. In all likelihood, a new global downturn in economic growth is in the cards.

The weakening economic data from China, slowdown in the U.S. economy’s job growth, worsening data in emerging economies and the Eurozone, not to mention Russia, collapse of commodity prices and volatility in the equity markets are all indicators of distress. Furthermore, the continuation of near-zero interest rates by major central banks many years after the “Great Recession” supposedly ended means that there are no more arrows in their quiver when the next major global recession strikes.

One other factor to be assessed are the fantasy employment numbers in the United States. While the official unemployment rate has supposedly been cut in half since the darkest days in 2009, in reality labor force participation is at historic lows (http://www.ibtimes.com/us-labor-force-participation-drops-absence-paid-parental-leave-keeps-women-out-jobs-2124175), revealing that the American economy is functioning well below its potential. In addition wage stagnation, and the latest revelation from the Bureau of Labor Statistics that earlier job creation figures were highly exaggerated (http://www.npr.org/sections/thetwo-way/2015/10/02/445244030/economy-adds-142-000-jobs-unemployment-steady-at-5-1-percent), demonstrates that even the U.S. economy, supposedly the healthiest on the planet, is manifesting growing signs of structural weakness.

In the wake of the global economic and financial crisis of 2008, policymakers in major economies made a bet on the same financial sector that unleashed the worldwide systemic disaster. Their decision was to engage in massive, unprecedented fiscal indebtedness and monetary loosening to prop up the investment and commercial banks, in the hope that this would stimulate reinvestment in the general economy (“main street”) and revive sustainable economic growth. There is growing evidence that this gamble made by decision makers in the world’s major economies is faltering. With staggering levels of sovereign debt, and central banks across the developed world having expanded their balance sheets almost to the point of infinity, the policymakers are left only with hopes and prayers that another massive crisis does not strike on their watch.

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Comedic Farce At The Bank Of Israel

August 4th, 2013 Comments off

Until recently, the Bank of Israel was judged by experts in the field of central banking as being the best managed and most effective central bank among advanced economies during a time of global financial and economic turmoil. In a few short weeks, Israel’s Prime Minister, Benjamin Netanyahu, and his Finance Minster in his coalition government, Yair Lapid, have succeeded in doing what once seemed impossible; transforming his nation’s central bank’s once stellar reputation into a comedic farce.

The reason why until recently  the BOI was viewed globally as a conspicuous success was largely rooted in the stewardship of its Governor, Stanley Fischer, whose term began  in 2005 and ended recently. Fischer, who had previously served as the Chief Economist of the World Bank, provided agile and careful management of Israel’s central bank with the onset of the global financial and economic crisis in 2008. He was far more judicious when it came to cutting interests rates, in contrast with many of his peers, who pressed the pedal to the metal when it came to loose monetary policies.  His policies are considered by experts to have been crucial in keeping the Israeli economy out of recession, and boosting exports, leading to one of the best performance metrics of any advanced economy since the onset of the global crisis. The consensus among central bankers is that Stanley Fischer was the best central banker in the world. A manifestation of the esteem felt for him was the effort by the previous prime minster of the Palestinian Authority to have Fischer appointed to run the International Monetary Fund after its then head, Dominique Strauss-Kahn, was forced to resign in disgrace (Fischer was disqualified due to his advanced age).

When Fischer decided to resign from his post at the Bank of Israel, he gave Prime Minister Netanyahu five months notice, ample time one would think, to find a suitable replacement. It seems that the time offered was largely wasted.  The Israeli Prime Minster also ignored Fischer’s recommendation  on  his replacement, Dr. Karnit Flug, a distinguished economist who has worked for the BOI for the past 25 years, and has served as Stanley Fischer’s Deputy Governor since 2011. However, Netanyahu, according to the Israeli media, dislikes Dr. Flug’s philosophy, and therefore selected Jacob Frenkel, who had served as BOI governor previously. Then the news reports emerged about Frenkel being suspected of shoplifting from a duty free shop in Hong Kong. He denied the charges, but after three weeks he withdrew his candidacy. Clearly, Netanyahu and Lapid had done a terrible job of due diligence. With Fischer already gone, and Flug serving as acting governor, the speculation grew that Netanyahu and Lapid would forego “philosophical issues,” and appoint the person Stanley Fischer had recommended. To the surprise of many, the two politicians again  sidestepped Ms. Flug, and this time selected Leo Leiderman, an economics professor who has also worked in private banking. Dr. Flug took the hint, and announced her resignation from the Bank of Israel, while agreeing to stay on for thirty days to facilitate Leiderman’s transition into the role of BOI governor.

Netanyahu and Lapid assured the Israeli business community that this time, they had truly done their due diligence. The words had barely escaped their lips when reports began proliferating in the Israeli media about Professor Leiderman’s penchant for consulting an astrologer on important matters, and accusations of sexual harassment while serving in an senior role at a major European bank. Within three days of his being introduced by Netanyahu and Lapid as the future governor of the Bank of Israel, Leiderman unceremoniously withdrew his candidacy.

Frenkel’s candidacy lasted for three weeks and Leiderman’s for three days. The joke circulating in Israel is that the next candidate nominated by Netanyahu and Lapid will last for three hours. One would think that after two disastrous nominations, the decision makers would have learned their lesson, and beg Dr. Karnit Flug to take the job. Yet, stories are still circulating in the Israeli media that Netanyahu continues to have problems with Flug’s philosophy, and remains convinced that his judgment on selecting the future governor of the Bank of Israel is superior to that of Stanley Fischer.

Netanyahu and Lapid, by their stubborn refusal to select a highly qualified woman and obvious best choice for a critically important position for the future sustainability of the Israeli economy, have succeeded in turning what was until recently the most admired central bank in the world into a global laughing stock.

If Hillary Clinton runs for President of the United States  in 2016, see the video about the book that warned back in 2008 what a second Clinton presidency would mean for the USA:

Hillary Clinton Nude

HILLARY CLINTON NUDE

Hillary Clinton Nude

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

To view the official trailer YouTube video for “Wall Street Kills,” click image below:

In a world dominated by high finance, how far would Wall Streetgo in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.

Have Central Banks Gone Too Far? A Warning From The Bank for International Settlements

June 24th, 2013 Comments off

A characteristic of the global financial and economic crisis that erupted in 2008 is that central banks have usurped the role of policy maker in sovereign states from the politicians. In the absence of coherent economic and fiscal policies in the United States, Japan, the Eurozone and United Kingdom, central bankers have employed their power over the printing press with unprecedented vigor, unleashing a tidal wave of liquidity in a desperate effort to stave off a global economic depression. With the manipulative aplomb of a snake charmer, they have sought to push down interest rates to a point where short term rates in most advanced economies are at virtually zero, while arousing confidence from investors and consumers who would have otherwise have little to cheer about.

The central bankers, in the minds of many, are the heroes of the economic crisis, supposedly saving the global economy from credit atrophy and demand destruction while the feckless politicians stood by helplessly. In case you would otherwise be unaware of the supposedly epic achievement performed by the central bankers, they have engaged themselves in a massive public relations drive during the crisis, paralleling their mega-liquidity dumps, seeking to persuade the public that central banks have become the new temples of salvation in an otherwise bleak economic and fiscal dystopia.

There has now emerged a strong voice that seems be throwing a wet blanket over the self-adulation that has become a by-product of central banks. Jaime Caruana is a name largely unknown to the public at large, but intimately familiar to every central banker. He is the general manager of the Bank for International Settlements; the BIS serves as a global clearing house for central banks.  Here is what Caruana had to say at the recently-concluded annual meeting of the BIS:

“Extending monetary stimulus is taking the pressure off those who need to act. Ultra-low interest rates encourage the build-up of even more debt. In fact, despite some household deleveraging in some countries, total debt private and public, has generally increased as a share of GDP since 2007. For the advanced and emerging market economies , it has risen by about 20 percentage points of GDP, or by $33 trillion — and rising government debt has been the main driver. This is clearly not sustainable. Low rates have allowed the public sector to postpone consolidation at the risk of a further deterioration in sovereign credit quality and damage to longer-term growth. There is plenty of evidence that as public debt surpasses about 80 percent  of GDP, it becomes a drag on growth, because it raises debt servicing costs and uncertainty about the future tax burden; it increases sovereign risk premia; and it reduces the room available for counter-cyclical policy.”

In effect, the general manager of the Bank for International Settlements is warning that the radical steps undertaken by central banks during the global crisis can do no more than buy time for the politicians to get their act together and craft sound economic and fiscal policies that are the underpinnings of sustained growth. To believe that central banks can or should continue their artificial pump priming indefinitely as a substitute for true economic reforms is to evade understanding of the scope and limits of what central banks are capable of.

Caruana offered the following summation:

“Borrowed time should be used to restore the foundations of solid long-term growth. This includes ending the dependence ondebt; improving economic flexibility to strengthen productivity growth; completing regulatory reform; and recognizing the limits of what central banks can and should do.”

Regrettably, none of the steps outlined by the BIS general manager have been implemented in any major advanced economy impacted by the global economic and financial crisis. It is likely that the limits of what central banks can accomplish will only be realized when the next major financial crisis arises.

If Hillary Clinton runs for President of the United States  in 2016, see the video about the book that warned back in 2008 what a second Clinton presidency would mean for the USA:

Hillary Clinton Nude

HILLARY CLINTON NUDE

Hillary Clinton Nude

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

To view the official trailer YouTube video for “Wall Street Kills,” click image below:

In a world dominated by high finance, how far would Wall Streetgo in search of profits? In Sheldon Filger’s terrifying novel about money, sex and murder, Wall Street has no limits. “Wall Street Kills” is the ultimate thriller about greed gone mad. Read “Wall Street Kills” and blow your mind.
photo

American Economy In Freefall

December 12th, 2008 Comments off

What began as a financial crisis in the U.S. housing and mortgage market has metastasized as a virulent global economic cancer. The U.S. economy is imploding, and taking down much of the world with it. In a tsunami of financial panic, central banks across the globe have been slashing interest rates to virtual zero, while simultaneously borrowing and printing trillions of dollars, which are being injected into failing banking systems.

With global financial arteries clogged, the economies of the planet are now cratering, with the United States economy in particular imploding at an alarming rate. A concrete example of this is the impending bankruptcy of the American automobile industry, which directly and indirectly represents the core of what is left of the domestic manufacturing industry in the United States. Ford, Chrysler and especially GM have told the U.S. government and its elected representatives in no uncertain terms that unless the government injects untold tens of billions of dollars into their virtually empty coffers, those companies will go bankrupt in a matter of months. GM has even indicated it could be forced to shut down within weeks.

With a federal budget deficit that has grown from the hundreds of billions to the trillions of dollars, where is the U.S. Treasury going to get these vast funds for the industrial bailout requests that are now piling on? Perhaps soon the retail sector of the American economy will be coming to Capital Hill, hat in hand. However, an infinite series of bailouts is not a solution to the global economic crisis.