{"id":1160554,"date":"2020-01-16T16:00:15","date_gmt":"2020-01-16T22:00:15","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=108856"},"modified":"2020-01-16T16:00:15","modified_gmt":"2020-01-16T22:00:15","slug":"a-world-gone-mad","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1160554","title":{"rendered":"A World Gone Mad"},"content":{"rendered":"

This post A World Gone Mad<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Today we gasp, stagger, reel.<\/p>\n

The enormity of it all has finally overmatched our capacities. Consider\u2026<\/p>\n

Total global debt presently piles up to 322% of GDP \u2014 a record.<\/p>\n

Total \u201cdeveloped world\u201d debt piles higher yet \u2014 383% of GDP \u2014 another record.<\/p>\n

The world\u2019s stock markets combine to $88 trillion, or 100% of global GDP. That is another record yet.<\/p>\n

Record upon record upon record has come down… as debt has gone relentlessly up.<\/p>\n

And what does the world have to show for the deluge?<\/p>\n

Little Bang for the Buck<\/b><\/h2>\n

Real United States GDP growth gutters along under 2%. Fair estimates place European and Japanese 2020 growth under 1%.<\/p>\n

Interest rates, meantime, are coming down. And so the supply of \u201cdry powder\u201d available to the central banks is coming down. They will require heaps of it come the next crisis.<\/p>\n

Project Syndicate, in summary:<\/p>\n

\n

The major developed economies are not only flirting with overvalued financial markets and still relying on a failed monetary-policy strategy, but they are also lacking a growth cushion just when they may need it most.<\/i><\/p>\n<\/blockquote>\n

Direct your attention now to the Bank of England. Specifically, to its balance sheet\u2026<\/p>\n

Where\u2019s the Crisis?<\/b><\/h2>\n

As a percentage of GDP…<\/p>\n

Not once in three centuries has this balance sheet swollen to today\u2019s preposterous extreme…<\/p>\n

Not when England was life and death with Napoleon, not when England was life and death with the kaiser, not when England was life and death with Hitler:<\/p>\n

\"IMG<\/p>\n

The Bank of England\u2019s balance sheet \u2014 again, as a percentage of GDP \u2014 presently nears 30%.<\/p>\n

It never cleared 20% even when England was absorbing obscene debts to put down Herr Hitler.<\/p>\n

Where is today\u2019s Napoleon? Where is today\u2019s kaiser? Indeed\u2026 where is today\u2019s Hitler?<\/p>\n

Yet the balance sheet indicates England is battling the three at once. And on 1,000 fronts the world across.<\/p>\n

We razz our English cousins only because the Bank of England is nearly the oldest central bank going (est.1694) and keeps exquisite records.<\/p>\n

It therefore offers a detailed, three-century sketch of central banking\u2019s shifting moods.<\/p>\n

Our own Federal Reserve\u2019s history stretches only to 1913. But its compressed history offers a parallel example\u2026<\/p>\n

Crisis-Level Balance Sheet<\/b><\/h2>\n

Its balance sheet expanded to perhaps 20% of GDP against the twin calamities of the Great Depression and Second World War.<\/p>\n

It then came steadily, inexorably and appropriately down, decade after decade. Pre-financial crisis… that percentage dropped to a stunning 6%.<\/p>\n

But then the great quake of \u201908 rumbled on through\u2026 and shook the walls of Jericho to their very foundations.<\/p>\n

The Federal Reserve got out its mason kits and set to patching the damage.<\/p>\n

Patching the damage? It built the walls up higher than ever…<\/p>\n

By 2014 quantitative easing and the rest of it swelled the balance sheet to 25% of GDP. That, recall, is five full percentage points above its 20th-century crisis peaks.<\/p>\n

Mr. Powell\u2019s subsequent quantitative tightening knocked down some of the recent construction.<\/p>\n

The balance sheet \u2014 as a percentage of GDP \u2014 slipped beneath 20% by 2018.<\/p>\n

But last year he pulled back the sledgehammers. Then, in September, the short-term money markets began giving out\u2026 and Powell rushed in with the supports.<\/p>\n

The Fastest Expansion Ever<\/b><\/h2>\n

He has since expanded the balance sheet some $400 billion in a four-month span \u2014 over 10%. Not even the financial crisis saw such a violent expansion.<\/p>\n

As we have presented before, the visual evidence:<\/p>\n

\"IMG<\/p>\n

The balance sheet presently nears $4.2 trillion, only slightly beneath its 2015 maximum.<\/p>\n

Here then is irony…<\/p>\n

\u201cA Magnet for Trouble\u201d<\/b><\/h2>\n

Observe the 2012\u201314 comments of Carlyle Group partner Jerome Powell \u2014 before he was Federal Reserve chairman Jerome Powell:<\/p>\n

\n

I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.<\/i><\/p>\n

First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated\u2026. What is to stop us, other than much faster economic growth, which it is probably not in our power to produce?…<\/i><\/p>\n

[W]hen it is time for us to sell, or even to stop buying, the response could be quite strong;<\/i> there is every reason to expect a strong response\u2026<\/i><\/p>\n<\/blockquote>\n

Continues the present chairman:<\/p>\n

\n

My [next] concern\u2026 is the problem of exiting from a near $4 trillion balance sheet\u2026 It just seems to me that we seem to be way too confident that exit can be managed smoothly. Markets can be much more dynamic than we appear to think…<\/i><\/p>\n

I think we are actually at a point of encouraging risk-taking, and that should give us pause\u2026<\/i><\/p>\n

I kind of think that a large balance sheet might prove to be a magnet for trouble over time… So I tentatively land on a floor system with the smallest possible balance sheet\u2026<\/i><\/p>\n<\/blockquote>\n

\u201cWhy stop at $4 trillion?\u201d… \u201cIt will never be enough for the market\u201d… \u201cfaster economic growth, which it is probably not in our power to produce\u201d… \u201ca large balance sheet might prove to be a magnet for trouble over time\u201d… \u201cI tentatively land on a floor system with the smallest possible balance sheet\u201d…<\/p>\n

Again \u2014 here is irony.<\/p>\n

What Happened to Powell?<\/b><\/h2>\n

Where a fellow stands often depends upon where he sits. And this particular fellow sits in the chairman\u2019s seat at the Federal Reserve.<\/p>\n

The Federal Reserve has a certain institutional\u2026 perspective.<\/i><\/p>\n

And so he leans whichever way it slants.<\/p>\n

Our co-founder Bill Bonner puts it this way:<\/p>\n

\u201cPeople come to believe whatever they must believe when they must believe it.\u201d<\/p>\n

What does Mr. Powell\u2019s 2012\u201314 self, the conscience tapping naggingly on his shoulder, tell him?<\/p>\n

That no enormity is ever enough for the market? Something about a magnet for trouble? A preference for the smallest possible balance sheet perhaps?<\/p>\n

But Jerome Powell has come to believe what he must\u2026 when he needed to believe it.<\/p>\n

We shudder at what he will come to believe come the crisis \u2014 or whatever his successor will come to believe.<\/p>\n

Meantime, the world runs to record debt, its stock markets run to record highs\u2026<\/p>\n

And we are about ready to run for the hills…<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/i><\/p>\n

The post A World Gone Mad<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post A World Gone Mad<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Jerome Powell said about the Fed’s balance sheet before he became Fed chairman…<\/p>\n

The post A World Gone Mad<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[1417,3724,366,818,716,463,1221],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1160554"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1160554"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1160554\/revisions"}],"predecessor-version":[{"id":1160555,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1160554\/revisions\/1160555"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1160554"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1160554"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1160554"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}