The Big Picture ... Market Perspectives

By Bryan Rich 

September 8, 2016, 2:00pm EST 


https://staticapp.icpsc.com/icp/loadimage.php/mogile/1014329/89450b52c102565f481ecfe4550f7cc5/image/pngThe ECB met this morning.  As expected Draghi and company sat tight.  The big events of the month are in two weeks, when the Fed and BOJ decide on rates/monetary policy.

Today let's take a look at the total assets that have been hoovered up by the world's biggest central banks, an activity that the central banks thought would lead to growth, and the gold-bugs thought would lead to hyper-inflation.  They've both been underwhelmed.   

The Fed's balance sheet has grown to almost $4.5 trillion ...

sept 8 us fed

The ECB's balance sheet is at $3.7 trillion and growing ...

sept 8 ecbj

The BOJ's has rocketed to $4.4 trillion and growing ...

sept8 boj

And China, the stealth QE'er has ballooned to $5.1 trillion ...

sept 8 china

That's nearly $18 trillion of assets on the balance sheet of the world's top central banks.  That means much of that $18 trillion of capital has been injected into the system.  It was widely believed that this strategy would put money in the hands of consumers.  Consumers would spend and borrow.  Employers would hire.  Banks would freely lend.  And the burden on global demand would be lifted.  

But it hasn't happened. Why?  The next chart tells the story ...

sept 8 vel of money

This chart above is the velocity of money. This is the rate at which money circulates through the economy.  And you can see to the far right of the chart, it hasn't been fast.  In fact, it's at historic lows. Banks used cheap/free money from the Fed to recapitalize, not to lend.  Borrowers had no appetite to borrow, because they were scarred by unemployment and overindebtedness.

Bottom line: We get growth and inflation when people are confident about their financial future, jobs, earning potential … and competing for things, buying today, thinking prices might be higher, or the widget might be gone tomorrow. It's been the opposite for the past eight years. 



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