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The New IMF Fiscal Monitor for April, 2016 is available
. . And the same tired tune is being replayed.
Two Chapters with headings tells the story in brief:
- Chapter one, Navigating a risky world;
- Chapter Two, Fiscal Policies for Innovation and Growth
Public debt rises. emerging markets falter, and no one buys from anyone, which tends to shut down production and curtail employment opportunities.
Nothing new in that, and repeating the same tune becomes tiresome. However redundant it may be, it becomes ever more obvious that money managers (meaning central bank authorities such as the Fed) have no idea in which direction opportunities lie.
A few years ago OECD issued a plea for "consolidation" an attempt to lower fiscal debt loads to the 60% debt over GDP ratio level, framing the suggestion in a easy going manner, bolstered by the hope that all nations would put their best effort behind the task and we'd be in clover shortly. We addressed the issue back then. There was minimal movement in the direction they indicated. Some nations made a minimal, optimistic gesture in the direction of a 5 or 7% reduction before relaxing, most were less ambitious.
That was back in mid-2012, when the ECB cut its interest rates down to as low as they dared and everyone was touting the improvement in employment ranks, still prior to the prominent Grecian/Eurozone tussle. Well, here we are going onto 4our years later, and the IMF is out with its latest assessment of possibilities and again we are hearing about "fiscal policy", "infrastructure investment" and "implementation of structural reforms". This is the IMF presentation of how to "navigate a risky world". Opening salvos point out the "worsening fiscal trends", "rising fiscal risks", and the effort to support "growth and long-term debt sustainability", "reducing vulnerabilities", by means of "Fiscal policies" to "promote innovations and growth". Biggest question in that mix, "Can fiscal policy do that?"
The advanced economies, who suffered 1% growth rates while the emerging nations were backing away from their earlier 6% + rates of better days prior to 2012, were convinced they knew how to escape the traps they laid for themselves. After all the "science" was there to guide them. But, it seems, when you depend on someone advocating salvation, there is little chance of delivery when the chips are down. Central banks are omniscient when things go well but helpless when events go against the grain; succinctly, useless in times of stress. They are unwilling to admit they depend on all commerce performing at their best at the worst of times; slightest slip and all hell breaks loose in policy measures that have no hope of shaking off the cobwebs and striking out on a path to recovery. There's something amiss in that policy outlook, something the learned gentlemen have not been able to detect.
Their idea of advanced economics, according to IMF, is that the growing divergences are set in the robustness of Fiscal Policy. . . or, is the lack of same the fatal flaw? The Fed's rate lift-off in December did nothing to stimulate confidence, bond yields are still low, the gap between US bills and bonds has been declared "benign" at a flat 1%, and the orientals are still groping in the dark in search of some benefit to be
found in adjusting their currencies in a world where buyers are still on holiday in all markets. The graphs from the emerging markets look like lightning striking, and overall charted fiscal balances are little more than collections of negative indicators.
In short, people, there is definitely a depression of some significance underway which is being hushed to fullest extent possible. We are not supposed to recognize the truth. One of the proposed suggestions as to reason for the failure is the unsettled atmosphere of the election year - with a slight reference to "obstructionism". (That's mentioned in the section devoted to fiscal risks!)
Two thirds of the nations in the ongoing (in the 2014-2015 period) IMF sampling group have experienced decline in their "revenue-to-GDP ratio". And the search is on for a means to reduce "vulnerabilities". When Robert J. Gordon places his One Wave global economic decline in a fifty to one hundred year time frame, he does so, it would appear, with a generosity based on hope that it could be stretched out that long.
The influx of refugees in Europe is a sign of the times: a strong similarity, if not a direct parallel between the weak non-war years of the first half of the twentieth century and the migration in search of opportunity to earn a living somewhere.
If we add the meagre collection of positives, where is the hope to be found? Our governments are more dedicated to wringing hands, mopping up tears, and tightening up purse strings yet another turn or two than they are in following the strategy of shifting debt from commerce to government coffers. This leaves the economists with no leverage whatsoever in the period of our Great Stagnation which it is hoped can be rescued by the inflation that refuses to materialize. Just as well, that would just aggravate the difficulties of coping on the part of our large cadre of unemployed.
In all, the latest in the run of publications summarizing the outlook for fiscal rescue over the past five years is no nearer an upbeat rhythm today than it was at the series' inception back in 2011. And we should note the new Office in the Treasury department, an offshoot of the Dodd-Frank Act, The Office of Financial Research offering its third annual report since the initial 2012. The 2015 report is the first Financial Stability Report. They provide support to the Financial Stablity Oversight Council which in terms of pay grades, ranks the uppermost of all the new authorities proposed in the Dodd-Frank Act - a committee once ranked among the DOA.
The OFR (Office of Financial Research) has some very clever artwork, reminiscent of that produced on the Shadow Banking System by staff members of the NY Federal Reserve Bank a few years ago. However, clever artwork is not a fair substitute for policy-making that stimulates market activity. Wages do that; and until we have sufficient people at the lower levels earning reasonable wages and patronizing the various markets, recovery will remain a distant target out of range of the weak weapons we've employed thus far in search of relief. And, in order to absolve themselves and their compatriots of guilt, the "scientists" will not report this as reluctant wages, but rather as reluctant demand. No presentation of bright, clean sunburst graphs or 3D tiered, multi-pillared networks will help in our understanding basics that are simply not working at the needed level at this time.
We can discuss challenges, liquidity, vulnerabilities endlessly, but in truth, it all depends on the simpler basics, doesn't it?
With the introduction of the new Office, it certainly does seem contradictory to have a political party advocating smaller government as a principal political goal while steadily introducing more complication requiring larger staff in government offices under an ever-growing umbrella of government protection. Or, is this their attempt to provide more job opportunities?
How much of that growth is duplication?
There is one more critique of the global economic situation - that of the banking and financial markets - The BIS quarterly review published in March, 2016. They discuss the flattening yield curves and widening credit spreads - those usually found in recessionary scenarios. They open their acknowledgement of -
- slowing growth in the emerging markets that "spilled over" into the advanced economies; followed by,
- expectations of reductions in interest rates and bank profitability; which was reinforced by,
- Bank of Japan's negative interest rate move with the ECB and the Fed making strange noises about measuring bank strengths followng rumors of 5 of the top 8 US banks falling short of strength in that area; and,
- Eurozone fears of a first, cancellation of coupon payments on the CosCos (contingent converitble bonds - the ECB bail-in arrangement.
The fourth paragraph in the opening section closed with this observation -
Following this release, the banking industry has come under fire with weakness demonstrated in the equities in Europe and the US.
We could go on with the BIS report, perhaps compare it to the other reports mentioned prior to that, but details add or detract nothing from the generality of the BIS report opening section. O&G's marginalia continue on through the opening 75 pages of the document and then onto the next section given over to "electronification" with a catchy title, Hanging up the Phone - electronic trading in fixed income markets and its implications.
But, we get the picture - everyone is agreed on the visible results and the unexpressed causes which, if voiced, would indict the banking and finance industries. Where they do not agree is on the cure. We've expressed our preferences for restitution and expulsion, but there is little chance of any such program being enforced - much less promulgated. So what we're left with in the cure department is divergence - a wide ranging series of proposals which all attempt to skirt realities or finger pointing and that eliminates any hope for hurryng along by way of an assisted cure. It appears if there's to be any cure, it will be the of the natural type meaning, the "scientists" will follow the popular advice given to fledgling physicians whereby ninety nine percent of the patients are presumed to recover on their own, so the advice is, "Don't do anything to worsen the situation."
Which may now stretch the generation timeframe assigned to recovery to perhaps another decade beyond, if the systems can sustain the stress. In all likelihood, we'll experience the major hit long before that. It's difficult to believe that even the most dedicated player can hold on for much longer.