Gluttony

"Gluttony might be innocuous were it not for the fact that gluttons tend to disregard whether their self-serving behaviors harm anyone else.  We don't need to look far and wide to find examples of gluttonous behavior, as they are numerous throughout the history of capital." - Simon Mainwaring

Reading article after article on the amount of debt being printed daily by the central bankers around the world is like listening to a stuck record (for those of you too young to know, in the good old days music was played on vinyl records that would sometimes hit a scratch and repeat themselves continually until you got up and moved the playing arm past the problem).  As I have mentioned before the Keynesian school of economics, which seems to be being practiced across the globe in some form or another, relies on heavy government spending, lower tax rates and low interest rates to stimulate spending.  A side effect of this is that large influxes of capital lower a country's currency value when measured against a basket of other currencies.  Lowering a currency's value stimulates exports and local consumption allowing a country to recover from an economic downturn. Furthermore increased spending from the government should result in stimulus and the result is economic growth.

Looking around the world today and it appears that the central bankers of the world have become gluttons of their own debt.  While Keynes was for stimulating I have to believe that even he would be shaking his head at this gluttony as $60 trillion of increased global debt has barely had any economic impact.  Each day billions is spent buying debt created by the governments.  Everyone it seems is awash with their own newly created debt but the results are not stimulus but a burgeoning debt level.  It is thought that unless more stimulus is added the world will fall into a massive recession so the only option is to print more money.  Stop printing and your currency appreciates making you open to a recession.  Raise interest rates and who knows where the currency will appreciate to and how far the economy will tumble!

Already we are seeing the effects of the slow down in stimulus from the Federal Reserve on the dollar.  As Japan is the largest glutton in the globe their currency has fallen the furthest against the dollar diving more than 30% in 30 months.  Britain and Europe have also seen their currencies fall against the dollar but not by as much as Japan,  Looking at the Euro/Yen exchange rate over the past two years shows only a 5% movement during the past two years as the two economic blocks fight for currency depreciation against the dollar.  With this lack of currency depreciation has come limited economic growth for either of these two areas while in America the stronger dollar is causing fits for American companies as their earnings and sales are tumbling.

As I mentioned in a previous blog it appears that this currency race to zero is not having the desired effect and in fact may be the cause of the globe's tussle with deflation.  Cheaper currencies mean cheaper exports leading to lower prices in the purchasing country resulting in an export of depreciation.  As one of the expectations from all of the stimulus is to see inflation resume it may be that the massive global debt is creating the very thing that everyone is trying to avoid.

In the United States where quantitative easing was officially stopped almost a year ago there is the expectation that the poor numbers from the first half of the year will be magically replaced by economic growth robust enough to require the Federal Reserve to raise interest rates.  Based on the above argument it seems almost impossible to imagine this happening as any further appreciation in the dollar will surely put a bullet in the heart of any economic growth and force the Federal Reserve to not only ratchet down the interest rates but to resume its quantitative easing program repeating a cycle that has produced no results.

As with most if not all gluttons it is not the starting that is the problem it is the stopping and this is the problem.  How the world of gluttonous central bankers weens their way off this quantitative easing cycle is beyond me but at some point, like all gluttons, the madness has to end and it is never pretty.