Central Banks Have Printed $22 Trillions’ Worth of New Credit Since 2008
The comments below are an edited and abridged synopsis of an article by Michael Pento
Global central banks have created an economic time machine by forcing $17 trillions’ worth of bond yields below 0%, which is now 30% of the developed world’s supply. It’s time to explain how the time machine has broken down.
There is almost nothing central banks can now do now except pursue hyperinflation: helicopter money to keep asset prices and the global economy from collapsing, because consumers, businesses and governments have become so saturated with debt that reducing interest rates no longer boosts consumption. Consumers cannot afford the principal at any interest rate, not even zero. And that is where most central banks are already.
This broken time machine is showing up in the data: in the Cass Freight Index, the Manufacturing PMI, the Services PMI, and the Bureau of Labor Statistics.
Global growth has stagnated, and there is a manufacturing recession worldwide; the US manufacturing sector is contracting, and the service sector is approaching the same condition; year-over-year S&P 500 EPS growth has flatlined; the best recession predictor, the spread between the Fed Funds Rate and the 10-year note, has been inverted for four months; the trade war with China is intensifying, and the yuan is dropping; aggregate global debt has soared by over $70 trillion since 2008; central banks have printed $22 trillion in the past decade to keep this insolvent debt from crashing; central banks can’t lower borrowing costs, and the economy is debt-saturated; savings and investing are dead thanks to the broken central bank time machine; and that same broken time machine is leading to a bond market supernova.
Between August 1 and October 30, we have an economic dead-zone—three months where there will likely be only one 25 bps rate cut from the Fed, and the trade war is slated to intensify. That reduction isn’t enough to fix the plunging yield curve or placate Wall Street. This is a time when there is a significant chance for a major decline in stocks.