China’s figures last week were not “helpful” to the “global growth” narrative, and now Japan and Europe have contributed their share of turning sentiment. It seems as if credit markets might actually be on to something with all this bearishness standing in stark contrast to stock markets that just don’t care about much except self-feeding participation and corporate indulgence.
There has been a sharp change in the winds of perceptions in this half of 2014, which, if you recall, was supposed to be full of growth engines everywhere.
A plurality of 38 percent of those surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession.
It was, of course, early July when the “dollar” suddenly shifted toward shortage in wholesale funding. I am quite convinced that the timing of that change is related to the ECB and its “desperation” in June going with a negative deposit rate “floor.” There is always internal pressure on a central bank, when faced with growing negative perceptions, to do “more” without seeming to “have” to do more; to be passive and reactionary to events is to allow the events to define the times rather than the other way around. Maybe Ben Bernanke was the foremost artist in that genre, as even when he announced QE3 he played it up almost as if it was just finishing touches on a monetary masterpiece rather than near-panicked “antidote” to the huge global slowdown that year.
That stands now in stark contrast to the ECB in June and Bank of Japan more recently upping QQE the night the horrible household income figures were released (previewing Japan GDP). In other words, credit and wholesale markets have taken a whiff of desperation in central banking to be more than just posturing, and the rest of the world is finally catching up.
A promise from European Central Bank president Mario Draghi to do “whatever it takes” to save the euro helped revive the London market today.
In a speech to European Parliament, Mr Draghi said the central bank was prepared to buy government bonds if inflation in the 18-country eurozone fails to rise…
The pound was also squeezed as economists continue to push back their forecasts for when UK interest rates will rise from their record low of 0.5 per cent.
As the UK re-assesses what actually accounts for economic recovery, and sustainable at that, Prime Minister David Cameron echoed this growing nervous sentiment that, along with Abe in Japan, seems to finally be throwing the global political class outside the “world is alright” narrative. Reality intrudes in sharp contrast to only a few months ago.
Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.
As I met world leaders at theG20 in Brisbane, the problems were plain to see. The eurozone is teetering on the brink of a possible third recession, with high unemployment, falling growth and the real risk of falling prices too. Emerging markets, which were the driver of growth in the early stages of the recovery, are now slowing down.
Cameron undoubtedly took note of election results in a nation whose situation is far too similar to his to be comfortable, namely yet another recovery that is unquestioned for economists in its righteousness while simultaneously unquestioned in the general public for the confusion by which economists keep talking about it in that manner. So Cameron has taken to oped’s to play up the UK’s economy as if it were some shining beacon of prosperity, with the entire essay devoted essentially to how fragile all that actually is (just ask Germany about sustainable growth) without noting the contradiction. The answer to such potential retrenchment is that Britain should just, like incumbents in the US, stay the course?
What politics leads is some version of the status quo, and in the UK it is Cameron’s idea that to “protect ourselves from a global downturn” (quoting his words) we must do exactly more of the same. That seems to ignore how Britain attained its GDP expansion these past few years in the first place, namely that like Germany they are not among the worst in Europe and have presided over nothing more than further impoverishment of the rest of the continent through the strangle of the euro and the persistence of monetarism.
Nowhere in Cameron’s writing were the words “Bank of England.” That is in sharp contrast to commentary from earlier in the year where the phrases “Bank of England” and “shining success story” (figuratively) were nowhere except in each other’s embrace. The same holds for the ECB in almost every commentary that dares to speak about the looming re-re-recession in Europe. All that is sampled is some form of “the ECB is trying real hard to avoid such a fate.” It is apparently too much to ask dutiful factual assertions that they have been consistent in their monetary applications for the whole of the six (actually seven, Mr. Cameron) years of perpetual crisis and related malaise.
What we are seeing here is a variation of the “China baseline” where the global economy has already experienced “a global downturn” back in 2012, but to which central banks promised easy monetary answers to combat it. The next year, 2013, was easily the peak in economic hope as in almost every location, from Europe to Japan to China, and even the US, monetary programs seemed to stir the beginnings of hope; at least enough in terms of positive numbers and sentiments for economists to simply extrapolate those to even bigger positive numbers. None of it was real, or in the few places it was, it was nothing more than transitory and fleeting.
In other words, the ECB, Fed, BoJ, BoE and PBOC all failed, though I highly doubt anyone in the media will even suggest any kind of accountability that even approaches such reality (especially the Fed where the cleanest dirty shirt supposedly launders a “Main Street” so fed up as to actually vote Republican). Central banks now are being hailed for doing the exact same things that not long ago did nothing to actually prevent the current fate; in the case of Draghi’s promise to “do whatever it takes” today he is literally replaying July 2012 and someone is supposed to ask him, directly, why we should expect something different this time (apart from, of course, from “investors” making ungodly sums with direct ties to ECB leverage).
The turn of the tide I still think flashes back to November 20, 2013. Credit markets in the US, reflected globally, were entranced by taper and the idea that recovery plus Fed exit meant “normalcy” which would be a global circus and affair, and in being positioned for that nearly brought down the whole of the global financial economy. It did a fair amount of damage inside the US as well, particularly in mortgages and consumer spending that hasn’t really recovered from that lack of recovery.
For the first half of 2014, that paradigm shift in credit was largely ignored even though it was further validated by “volatility” in even US GDP (as well as Japan and China, and to some extent Europe). It wasn’t until the ECB on June 10 panicked into the negative deposit rate that hope finally died, or at least began to be recognized with its heavily diseased notes. Now even politicians are voicing recognition, as they can no longer simply participate in pretending after having part in extending the narrative as long as it has lasted. Central banker panic, as with Kuroda and Draghi, is electoral poison; better to simply pretend they either no longer exist or that monetary policy wasn’t all that important in the first place.
But a revival in growth figures has not been enough to give him a lead in the polls. In most surveys, Cameron’s Conservatives are running just behind the Ed Miliband-led Labor Party, despite polls showing Miliband to be one of the most unpopular major party leaders in modern times.
Labor has argued that despite economic growth and falling unemployment, wages have stagnated and the benefits of recovery have been concentrated too heavily among the country’s wealthiest.
There is twisted irony in that statement, as Cameron has begun the horse race behind “one of the most unpopular major party leaders in modern times” without running to the Bank of England for cover and comfort.
The global pox of monetarism is being played out without reference to any central banks anywhere. Despair, even economic and financial, are now all their own, with monetary policy nothing but sunshine and joy. Still, there is at least some measure of indirect recognition in that an election in Britain in the middle of 2014 would have been replete with politicians falling all over Bank of England officials; the election set for the middle of 2015 begins without any reference to them at all. It would be a beautiful start to a fairly-owed rebuke if it presaged anything other than the revenge of the Keynesians and their intent to revisit fiscal confidence schemes.