Central banks – “No Ammunition Left”

Shares and the USD fell last night and gold & silver surged on the latest European Central Bank meeting news.  In the past such increased stimulus announcements would have seen shares surge, but 2016 is clearly marking a market losing faith in the ability of central bankers.  Listen to today’s podcast to hear all about the ECB announcement, but there was one morsel of Draghi’s commentary that caught our ear…

“The measured driver of the economy and the recovery basically remains our monetary policy,”

Yup… not fundamental ‘natural market’ growth, not government fiscal policy reform (spending less than your income)… but debt fuelled stimulus is the driver of the Euro zone economy and any hope of recovery.  

Coincidentally this week we heard from ex US Fed President Dick Fisher tell a live CNBC audience that:

"we injected cocaine and heroin into the system" …."now we are maintaining it with ritalin." 

He then spells out that all it did was raise financial asset prices but didn’t actually work for the broader economy.  It didn’t actually fix anything.  It was only 2 months ago in another interview he said "The Fed front-loaded an enormous market rally in order to create a wealth effect."

2016 appears to be the beginning of a realisation that the main thing propping up financial markets is central bank stimulus and that very same stimulus is responsible for over $60 trillion in more debt than since the GFC, itself a debt induced crash.  So what happens if we see another crash soon?  Well back over to you Mr Fisher…

 "The Fed is a giant weapon that has no ammunition left."