This morning, after quietly sneaking out of the house at an ungodly 3am, I visited with Ross Westgate on CNBC’s World Wide Exchange.  The discussion started with the upcoming ECB decision with respect to additional monetary stimulus in the Eurozone. As I state, the ECB has now effectively boxed themselves into a corner. For the last couple of years, the liquidity driven rise in economic activity in the U.S. has helped to support the Eurozone. However, now still high levels of unemployment and deflationary pressures are negatively impacting economic growth. It is unlikely that Mario Draghi’s promise “to do anything” will continue to work if action isn’t taken. The issue is whether such actions will be enough at this very late stage of the game.
The conversation also covered my views on the potential inability of the Federal Reserve to tighten monetary policy in the U.S. for many of the same reasons. It is quite likely that the Federal Reserve is now caught in a liquidity trap as economic strength remains muted forcing rates to stay at exceedingly low levels much longer than anticipated.
As I wrote previously:
“More importantly, this is no longer a domestic question – but rather a global one since every major central bank is now engaged in a coordinated infusion of liquidity. The problem is that despite the inflation of asset prices, and suppression of interest rates, on a global scale there is scant evidence that the massive infusions are doing anything other that fueling the next asset bubbles in real estate and financial markets. The Federal Reserve is currently betting on a “one trick pony” which is that by increasing the “wealth effect” it will ultimately lead to a return of consumer confidence and a fostering of economic growth? Currently, there is little real evidence of success.”
Also, here is my latest work on interest rates with historical links supporting the discussion on interest rates and why they are likely headed lower rather than higher at the current time.
