Central Banks’ Asset Buying SpreeEconomic analysts are sounding alarms over the accelerating rate that central banks are purchasing assets. The U.S. Federal Reserve alone is buying some $41 billion in assets daily. [Bloomberg] The central banks of the ‘Group of Seven’ countries, in total, purchased some $1.4 trillion in financial assets in March. That’s a little less than five times as much as they did during the Great Recession in 2008. As Morgan Stanley analysts told Bloomberg, the Fed, Central European Bank, Bank of Japan, and Bank of England will have a cumulative $6.8 trillion in assets when this is over. The spike has been nothing short of extraordinary — and it demonstrates just how is being done in desperate attempts to help their economies while in lockdown. However, once the dust settles, there are concerns now that this may come back to haunt developed nations. According to Deutsche Bank’s Torsten Slok, “We just have to get used to a new world where central bank balance sheets are so much bigger.”
Playing with FireAs BeInCrypto has reported repeatedly, the fiscal actions being taken worldwide are unprecedented. Increasingly, states are relying on central banks rather than fiscal measures to boost economies. On April 9, the U.S. Fed committed $2.3 trillion in stimulus and more is likely on the way. However, despite the Fed claiming that there is an “infinite amount of cash,” the music has to stop eventually. During a deflationary spiral caused by a steep drop in global demand, economies cannot be propped up by deficit spending and money-printing alone. What the asset-buying by central banks seems to indicate that the current crisis is far more serious than 2008 ever was. Central banks and the IMF are not only hoping for a ‘V-shaped’ recovery — they are depending on it. If the recession looms for many years, however, these short-term efforts to buy up assets may be followed up with disastrous consequences.
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