Stephen King from HSCB warns that the global authorities have alarmingly few tools to combat the next crunch, given that interest rates are already zero across most of the developed world, debts levels are at or near record highs, and there is little scope for fiscal stimulus.
"The world economy is sailing across the ocean without any lifeboats to use in case of emergency," he said.
In a grim report - "The World Economy's Titanic Problem" - he says the US Federal Reserve has had to cut rates by over 500 basis points to right the ship in each of the recessions since the early 1970s. "That kind of traditional stimulus is now completely ruled out. Meanwhile, budget deficits are still uncomfortably large," he said....
The US cannot easily launch a fresh New Deal. Public debt was just 38pc on GDP when Franklin Roosevelt took power in 1933, and there were few contingent liabilities hanging over future US finances.Looks like all we can afford is depression, and, of course, war.
But not to worry, economics is a science.
HSBC's Mr King says the global authorities face awful choices if the world economy hits the reefs in its current condition. The last resort may have to be "helicopter money", a radically different form of QE that injects money directly into the veins of economy by funding government spending.Lots of data on the global economy in the article though.
It is a Rubicon that no central bank wishes to cross, though the Bank of Japan is already in up to the knees.
Telegraph
HSBC fears world recession with no lifeboats left
Ambrose Evans-Pritchard
“The last resort may have to be "helicopter money", a radically different form of QE that injects money directly into the veins of economy by funding government spending.”
ReplyDeleteJesus: the state might have to create fiat and spend it! Disaster. The result might be more people in work, and we can’t have that, can we children?
But wait a moment - having government borrow and spend money and give bonds to its creditors with the central bank then printing money and buying those bonds (QE) comes to the same thing as the above dreaded “helicopter” option. So the above dreaded helicopter option has already been put into effect big time. This is the end of civilization as we know it..:-)
HSBC would be much better off if it replaced its chief economist, Stephen King, with a chimpanzee.