If you thought that central banks have finished their stimulus programs and monetary expansion initiatives then you may be in for some bad news as a new report has found that central banks around the world are set to expand their balance sheet at the highest level in four years.
Although the Federal Reserve and the Bank of England have winded down their quantitative easing measures (for now), other central banks are just getting started as part of efforts to spur economic growth and incite consumer spending.
According to Credit Suisse Group analysts, the balance sheets of the four top central banks will actually increase 13 percent next year, or $1.3 trillion, after this year’s slight five percent expansion. This immense growth will be led by the Bank of Japan (BOJ), which will boost its QE to $855 billion, and the European Central Bank (ECB), which will enhance its assets by approximately $500 billion.
The main objective in these stimulus measures is to bring about more stimulus into the economy and encourage businesses, consumers and investors to take more risks and spend more, even if it’s money they don’t necessarily have in the first place.
Heads of central banks simply say that QE tools have worked in the United States so it should be successful in their countries. However, QE hasn’t really turned out well in the Land of the Free as the Federal Reserve’s balance sheet stands at $4 trillion, price inflation is gradually growing, the national debt is $18 trillion, the labor force participation rate is at a 36-year low and more bubbles are popping up all over the stock market.
The central banks are taking part in currency wars, whether they intend to do so or not, because their monetary policies are weakening their currencies. It’s a race to the bottom for the likes of the U.S., ECB or the BoE.
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