Global Economy Endangered by “Quantitative Easing”: Towards a New Financial Derivatives Bubble?
By Paolo Raimondi
December 13, 2013
Continental developments for a multipolar world
Notwithstanding so many expert studies and international conferences devoted to the reform of global finance and of banks considered “too big to fail”, we are still faced with continuing irresponsible and unacceptable economic and financial behaviour, and this is what bears the primary responsibility for the financial crisis.
To make things more complicated and dangerous, since 2008 public bailout operations have significantly increased indebtedness in the G20 economies. Overall, G20 countries have seen their total indebtedness increase by more than 30%, both domestic and international debt, public and private. This increase in total debt reflects a large increase in public indebtedness, particularly in advanced economies, that has not been offset by any decrease in aggregate private indebtedness.
Despite all efforts to decrease fiscal deficits, gross public debt of the G20 has risen by an average of 22% of GDP in the period between 2007 and 2013. The situation is more favourable in emerging economies, notably among larger economies in Latin America, where both fiscal deficits and public debt have declined on average. Among these economies, public debt to GDP is in most cases close to or below the 40% ratio.
To deal with such a major financial earthquake, central banks in major economies have lowered policy rates to near zero and have massively expanded their balance sheets. As a result, the central banks hold assets that have risen from about $4 trillion just before the crisis to $10 trillion today.
The policy of “quantitative easing”
In fact, since 2007 the US Federal Reserve System has been working with “non traditional policy tools”, that is with non conventional monetary weapons, which are based on enlargement and management of its “balance sheet”.