Very grim reality, Europe and the United States has actually lost the ability to once again rely on overdrafts to stimulate the economy, policy makers even have the will, as in 2008, major efforts and the size of "liberal" has been difficult to do so. Monetary policy to stimulate the threshold is high, monetary policy-making is bound to become increasingly difficult, which is the monetary authorities in Europe and America have to face the embarrassment.
This week in the United States, the European Central Bank focused on interest rates of, in the face of an increasingly weak economy and an increasingly heavy debt burden, despite quantitative easing "Kite" line is still America, the European Central Bank in the hands, but The monetary authorities are powerless I am afraid that is still difficult to quantitative easing, "Kite" beyond this.
A new round of economic stimulus timing is approaching. The data released by the U.S. Commerce Department, consumer spending has slowed down the impact of U.S. economic growth slipped further in the second quarter of this year, real gross domestic product (GDP), the initial value of the annualized quarter rate of growth of 1.5%, showing that the domestic financial concerns or will cause the economy is clearly downstream. The data show that in the first quarter of this year, GDP is the final value annualized quarter rate of increase from 1.9% to 2.0%, while last year's fourth quarter GDP final value of the annualized quarter rate rose to 4.1 percent, which means that the United States for two consecutive quarters of economic recovery stalled, and this is the fourth quarter, an increase of no more than 2% since last year, this growth rate is much lower than the level of long-term potential growth rate in the United States. Thus, with the window period approaching yet another Federal Open Market Committee (FOMC) policy meeting, the world is estimated that the quantitative easing the door has been opened again.
To stimulate the economy, the Fed almost exhausting it can include overnight bank lending rate, one-month and one-year Treasury interest rate short-term interest rates near zero, while the Federal Reserve in response to weakness in terms of economic growth has no space to stimulate the effect is bound to have deteriorated. The eve of the Lehman bankruptcy triggered a financial tsunami in 2008, Bank of America commercial loans amounted to approximately $ 1.57 trillion. Financial tsunami, the scale of about 50 trillion of subprime mortgages and financial derivatives vanish, because the financial industry is the rapid deleveraging, the banks cash flow is extremely exhausted. In response to the global financial crisis, from August 2007, the Fed has 10 large-scale cut interest rates, federal interest rate from 5.25% to 0-0.25% target range, 12 to reduce the discount rate a cumulative 575 basis points to 0.5%, and Continuous implementation of two quantitative easing, finally came out from the recession in the U.S. economy.
In fact, the threshold of further quantitative easing policy has been relatively high, taking into account the overall size of the previous QE1 and QE2 has reached $ 2.35 trillion. Fed to buy more asset-backed bonds, the more you add greater difficulty to the future exit strategy. Right now, the United States, total deposits reached $ 8.1 trillion to $ 2.2 trillion higher than the level in 2008 when the financial crisis. The continued economic downturn resulting in increased demand for cash holdings, but because of the U.S. credit channel is far from recovery, the money multiplier significantly reduce not base money growth into the M2 growth and real inflow to the real economy. According to statistics released by the Federal Reserve, huge amounts of unused idle funds in the U.S. banking system, including $ 1.5 trillion in bank excess reserves and over two trillion U.S. dollars of corporate funds.
On the other hand, in sharp contrast with this, on behalf of the global "safety wind vane" of U.S. debt again favored. U.S. 10-year Treasury yield has fallen to about 1.5 percent, to record the lowest level of the Federal Reserve since 1953 to start recording data. Yields a low and then low and also reduces the influence of the marginal consumption and investment, allocation of resources on the real economy actually sent a wrong signal. As research the Fed's well-known U.S. economist Alan Meltzer recently wrote an article in the Wall Street Journal on the theory of slow economic recovery and persistent high unemployment is not caused by monetary policy, it is difficult to use monetary policy to cured, if the Fed to further drive down mortgage rates at historic lows, helping to stimulate economic growth limited.
More confused than the Federal Reserve, European Central Bank head - Drudge. The tough stand to listen to his recent defense of the euro at all costs ", European Central Bank to continue to" rescue ", and assume the role of lender of last resort is very likely. Lowered the refinancing rate down the interest rates on deposits and other routine operations, the ECB may also re-start the long-term refinancing operations (LTRO) and the purchase of debt plan (SMP) and other unconventional operations, but it may have been "spent force".
Let's look at a few facts clear. First of all, two long-term refinancing operations, the total size of the European Central Bank's balance sheet reached 3.2 trillion euros, while the European economy is still deteriorating. The reason is very simple the LTRO loan interest is 1%, the ECB's overnight deposit interest rate is 0.25%, banks would rather lose money to save the European Central Bank, are unwilling to lend. Banks are more inclined to reserve funds to cope with the huge amount of maturing debt, or direct repurchase expiring bank debt, rather than large-scale use of money involved from the the LTRO get the capital markets or lending to the real economy.
In fact, for European banks, LTRO only an asset-backed exchange for the liquidity process, which is equivalent to the reverse repurchase not be able to bad assets held by the balance sheet, bank leverage ratio is maintained at a high level, to leverage and supplementary capital adequacy remained the operation must be carried out. If so, then the ECB will also be saddled with huge bad debt risk. Monetization of debt or debt risk transfer is still difficult to fundamentally solve the debt crisis in Europe, so the large-scale injection of the European Central Bank risks remain, not been able to break the vicious cycle of sovereign debt crisis.
Secondly, by rebooting the securities market program (SMP) to buy bonds, the ECB's bond purchase plan is not good. 2010 debt purchase period, Italian and Spanish government bonds interest rates on German bonds widened from 100 basis points doubled to 200 basis points. During 2011, the interest margin of 260 basis points almost doubled to 500 basis points, the euro area sovereign yield differentiation between the edge of the country with the core countries not only failed to alleviate, but there continue to worsen. The edge of the country under a growing debt burden in the secondary market financing is almost hopeless.
Reality, the mechanism of blood transfusion by the banks to the real economy almost blocked. As of early July, the European banks use the overnight deposit instruments to the European Central Bank funds deposited more than 7900 billion euros, the backlog of so much liquidity in the ECB, which directly affect the normal operation of the European credit markets. Right now despite the European Central Bank overnight deposit rate dropped to zero, and tried to deposit expelled from the European Central Bank account, but have little practical effect.
The cold reality is, monetary authorities in Europe and America in fact has lost the ability to once again rely on overdrafts to stimulate the economy, policy makers even have the will, I am afraid that such major efforts as in 2008 and the scale of the "loose" it is difficult to achieve. Monetary policy to stimulate the threshold is high, monetary policy-making is bound to become increasingly difficult, which is the monetary authorities in Europe and America have to face the embarrassment.
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