Central bankers should listen to what analysts say

pub_date:Shift from excessive liquidity to a more normal equilibrium could be anything but smoothTHE term "tapering" seems to be on the lips of just about everyone connected with finance these days, whether they are central bankers, economists or investors.文件倉 Tapering is a euphemism for the beginning of the end; and the end of monetary easing by central banks promises to be epoch making.Among those to recognise and acknowledge this fact in recent days have been people from such diverse backgrounds and institutions as Christine Lagarde, managing director of the International Monetary Fund (IMF), and a group of analysts at Bank of America Merrill Lynch (BOA-ML).The global economy, as Ms Lagarde put it in a speech to the central bankers' meeting in Jackson Hole, Wyoming last weekend, has entered "terra nova" (new land) as a result of "unconventional monetary policy" (UMP), and that navigating out of this territory is going to be very hazardous.Unlike individual central bankers (whether from the US Federal Reserve, the European Central Bank (ECB), the Bank of Japan or the Bank of England) who say that "UMPs" are their own national business, Ms Lagarde argued that global monetary coordination has never been more essential.The IMF "has been giving a good deal more attention to the wider implications of these (unconventional monetary) policies", she noted."We are tracing out the interconnections within countries - say, between the financial sector and the real economy - and between countries," she added.Meanwhile, a group of BOA-ML analysts, led by its chief investment strategist Michael Hartnett, has looked at financial markets since 1800 and concluded that they are in an "extraordinary" state today following "unprecedented central bank intervention" in recent times.Financial leveraging has expanded massively to the point where total debt in the United States has reached US$57 trillion or more than three times the size of the US economy, whereas it was just equal to the value of gross domestic product half a century or so ago, the BOA-ML team found.Such massive leveraging led to a series of financial crises and then to equally huge deleveraging. But the impact of all this has been masked by the so-called quantitative monetary easing and other forms of UMP. A smooth transition from one extreme to another, you may think.But is it, really?If Ms Lagarde is to be believed, and her position at the top of the IMF with all its ability to collect and coordinate data from around the world suggests that she should be, then the transition from liquidity surplus to a more normal equilibrium could be anything存倉but smooth. Central banks, she said, "have been the heroes of the global financial crisis. Compared with conventional monetary policy, the policies of the past few years have been bolder in ambition and larger in scale. They helped the world pull back from the precipice of another Great Depression".But these same policies are now having effects which, if not wholly unexpected, are certainly unwelcome, plunging many emerging-market economies into turmoil as liquidity that rushed into these markets on the back of UMP exercises is rushing out again now, everywhere from India to Brazil."This is very much on our minds as we have watched developments this week," Ms Lagarde told the Jackson Hole assembly. "It reminds us that policy actions in one corner of the world can reach all corners - and it is the job of the IMF to shine a light on developments in all (those places)."Unconventional monetary policies, she added, involve navigating a new world. It is like stepping into a dark room. To borrow words from former US president John F Kennedy: "We are not here to curse the darkness, but to light the candle that can guide us through that darkness to a safe and sane future.""We need to work together to understand more fully the impact of these unconventional policies - local and global - and how that affect the path of exit. Global policymakers have a responsibility to take the full range of actions needed to restore stability and growth," Ms Lagarde said.Her comments appeared to fall on deaf ears among some central bank heads present in Jackson Hole as they pushed their sovereign right to pursue whatever policies they feel best suit their own interests. The heads of the Fed and the ECB meanwhile chose to stay at home rather than be lectured to.Perhaps if national central banks will not listen to the global central bank (which is what the IMF is supposed to be) and insist on acting unilaterally rather than multilaterally, they might at least lend an ear to what market practitioners such as those at BOA-ML are saying."The degree of global policy stimulus and intervention in financial markets is historically unprecedented," they noted, citing for example the fact that "in 300 years of history the Bank of England's base (lending) rate has never been lower than the 0.5 per cent of the past four years".All this monetary stimulus, the analyst group noted, "has been bullish for asset prices - but not yet for the economy".In the coming year, "the macro success or failure of the war against deflation in the US, the UK, Europe and Japan will determine the fate of asset price, and of the global economy, maybe.迷你倉