Central bankers blink
One week ago, I showed you that the Bank for Institutional Settlements (BIS) was worried about a ‘debt trap’.
In one of its overly wordy papers, the BIS argued that central bankers making policy decisions today have to consider the impact those decisions will have a decade from now.
Well, it turn outs our central bankers just blinked, with Bloomberg writing this morning: ‘Three months since the Federal Reserve put US interest rates on a prolonged pause, more and more central bankers around the world are getting nervous about tightening monetary policy.’
Because worldwide economic data isn’t as healthy as they’d like us to believe.
Sure, there has been some positive growth data from both China and the US. But it’s fleeting. Other economies around the world are struggling. And central bankers are beginning to react to that.
Take this, for example.
South Korea’s economy caught the market off guard by shrinking this week. The biggest reduction in more than 10 years.
Then there was Australia’s consumer price index data, reading 0.0% for March 2019. That brings year-on-year CPI to 1.3%.1
Over in Germany and France, key confidence indicators dipped to 100 points. Once they fall below the 100 mark, it means people are pessimistic about the economy…
And behind all of this are the central banks themselves, reacting to the not-so-rosy numbers.
Japan said this week that its central bank will keep rates at the rock-bottom level of -0.1% until at least May 2020.
The Turkish central bank has dropped its promise to increase rates if needed. The Bank of Canada reckons there’s no more rate hikes coming from them, either.
And over in Eastern Europe, the Ukraine central bank — the one with Europe’s highest cash rate — cut its rate by 0.5% to 17.5% yesterday.
Basically, a week after the BIS warned that people were stuck with debts that were impossible to repay, central banks around the world took steps to make credit cheaper.
That’s at odds with what the BIS was warning about.
Which is why today’s analysis from Jim is timely.
US President Donald Trump still has two more vacant spots to fill on the Federal Reserve Board.
And as Jim writes below, some aren’t happy with one of Trump’s first choices. However, there is a second option open to Trump…and it could surprise everyone.
The second choice is an advocate for a gold standard. Someone who is at odds with modern-day central bank thinking…
Given most central bankers don’t know which direction to take, perhaps this could be the best decision after all.
Until next time,