Deflation, Stagnation and Vast Money-Printing Operation Fueling Tensions, Creating Conditions for Another Global Financial Crisis
By Nick Beams
November 18, 2013
Further evidence emerged last week that the pumping of money into the financial system by the world’s major central banks is doing virtually nothing to promote global economic growth. Instead, there are mounting warnings that the vast money-printing operation is creating the conditions for another global financial crisis.
Amidst the general stagnation, moreover, tensions between the major economic powers are intensifying.
The Financial Times noted on Friday that “disappointing growth figures” for Europe and Japan had “dashed hopes that a global economic recovery would gather pace in the second half of the year.”
Growth in Germany, the main economy of the euro zone, increased by only 0.3 percent in the three months to the end of September, while the French economy shrank by 0.1 percent, after growing by 0.5 percent in the previous quarter.
In Japan, the initial boost given to the economy by so-called Abenomics—the push by the Bank of Japan to double the country’s money supply—appears to be running out of steam. The rate of growth halved in the third quarter, falling to an annualised rate of 1.9 percent after hitting 3.8 percent in the second quarter, mainly due to a fall in consumption, which dropped from 0.6 percent growth to 0.1 percent, and a decline in exports, which contracted by 0.6 percent.
In the face of slower growth, the US Federal Reserve’s policy of “quantitative easing” is likely to continue. In her testimony before the Senate Banking Committee, Janet Yellen, nominated by President Obama to take over from Ben Bernanke as Federal Reserve (Fed) chairman in January, said the American economy and the US labour market were performing “far short of their potential” and had to improve before the Fed would reduce monetary stimulus.
The official reason advanced by the Fed and other central banks for the provision of ultra- cheap money to the banks and financial institutions is that it is needed to boost the economy. The real reason, however, is that low inflation rates, and even deflation, cause major problems for large holders of debt, especially financial institutions. With low levels of inflation and falling prices, the real value of debt and debt repayments starts to rise under conditions of economic stagnation.