gnostam economics briefing may 2013
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Economics Briefing Gnostam Monthly Economics Briefing
May 2013
The impact of the end of QE3
Europe Battles Long-term Challenges
Europe’s debt crisis is far from over, with severe austerity measures undermining growth prospects well beyond mid-‐decade. A number of debt-‐heavy na<ons, locked in recession, are experiencing substan<al social and poli<cal fallout from sky-‐high youth unemployment rates.
QE is ending worldwide � Recovery in housing is driving this;
� Gold price down, but at $1,300/oz is still half of value in real terms i=of 1980’s peak;
� Cash out of in I-shares SPDR Gold trust, means real economy has more potential for real returns, [280 T increase 2012, 177T decrease in Q1 2013];
� Industrials in US increase profits, have great balance sheets, but growth in sales is a problem, >1%.....
A lot of QE benefit swallowed up Gap between mortgage rate paid by homeowner,
and yield on mortgage bond
Source: http://www.newyorkfed.org/research/conference/2012/mortgage/primsecsprd_frbny.pdf
Does QE cause inflation? Printing money causes inflation only if the money
is lent & spent …
6.50
6.70
6.90
7.10
7.30
7.50
7.70
7.90
2008 2009 2010 2011 2012
$trn
0.0
0.5
1.0
1.5
2.0
2.5
3.0Money supply(right axis)
Bank credit (left axis)
Source: Gregory Ip, Economist. Shows the extent of bank solvency problem!
… or if expected inflation rises
-1.5-1.0-0.50.00.51.01.52.02.53.03.5
2008 2009 2010 2011 2012
Expected inflation
Real bond yield
Source Gregory Ip, Economist
Conclusion � Democracies in advanced are addicted to nominal
growth, not real growth!
� Money supply has bought time for the adjustment in living standards;
� Now it is up to developed world to create real economy wealth, and that is very difficult in today’s economic environment;
� Banks role at center of developed economies will have to change [= regulated], as have not been able to fund growth, just asset bubble lending.
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