Economisch kort – lage rente, lage groei
In deze Economisch Kort behandelt Daniel Lacalle de gevolgen van de lage rente die de centrale banken in stand houden.
Zijn betoog vervolgt:
Central Banks should know by now that you cannot have negative interest rates with low bond yields and strong growth. One or the other.
Central banks have chosen low bond yields at any cost, despite all the evidence of stagnation ahead. This creates enormous problems and perverse incentives.
Publicatie 7 juli
It is not a surprise that markets have bounced aggressively, driven by the tech sector, after a slump based on concerns about the pace of economic growth. Stimulus package effects are increasingly short, and it was pretty evident in the poor figures of industrial production and the ZEW survey gauge of expectations. The same can be said about a weakening ISM index in the United States. United States ISM Services PMI came in at 60.1, below expectations (63.5) in June, precisely in the sector where the recovery should be strongest.
Interestingly, European markets declined sharply after the European Central Bank sent the ultimate dovish message, a change in its inflation target that would allow the central bank to exceed its 2% limit without change of policy. What does it all tell us?
First, that the placebo effect of stimulus packages shows a shorter impact. Trillions of dollars spent create a small positive effect that lasts for less than three months but leaves a massive trail of debt behind.
Second, central banks are increasingly hostage to governments that simply will not curb deficit spending and will not implement structural reforms. The independence of the monetary authorities has long been questioned, but now it has become clear that governments are using loose policies as a tool to abandon structural reforms, not to buy time. No developed economy can tolerate a slight increase in government bond yields, and with sticky inflation in non-replicable goods and services, this means stagnation ahead with higher prices, a bad omen for the overall economy.
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