Present inflation is much worse than the Fed graph indicates, according even to Larry Summers

 COMPARING PAST AND PRESENT INFLATION

 BIANCO RESEARCH

This is 1974 all over again, not 1951.

 

 

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Massive Global Central Bank Balance Sheet Expansion Interferes With Interest Rates

The balance sheets of the world's biggest central banks have exploded 178 percent between May 2006 and November 2011.

So says the data compiled and illustrated by James Bianco in late January at The Big Picture here:

The combined size of [the world's largest] eight central banks’ balance sheets has almost tripled in the last six years from $5.42 trillion to more than $15 trillion and is still on the rise! ...

QE is an expanding of balance sheets via increasing bank reserves.  The purpose of QE ... is to increase bank reserves through purchases of fixed income securities in order to lower interest rates. ...

[I]t is fair to compare the size of these balance sheets (now $15 trillion) to the capitalization of the world’s stock markets (now $48 trillion). ...

Prior to the 2008 financial crisis, the eight central bank balance sheets were less than 15% the size of world stock markets and falling.  In the immediate aftermath of Lehman Brothers’ failure, these eight central bank balance sheets swelled to 37% the capitalization of the world stock market.  But keep in mind that the late 2008/early 2009 peak was due to collapsing stock market values combined with balance sheet expansion via “lender of last resort” loans.

Recently, the eight central bank balance sheets have spiked back to 33% of world stock market capitalization.  This has come about not by lender of last resort loans, but rather by QE expansion (buying bonds with “printed money“) even faster than world stock markets are rising.


Some people look at this information as evidence that the intent of the central banks is to boost asset prices to keep the illusion of growth going. But what if it's really just about buying time, attempting to secure lower roll over interest rates for refinancing massive debt loads which have become a giant millstone around the neck of the world?

The total public and private debt of the world's 35 most indebted nations alone tops $57 trillion, which is 95 percent of the $60 trillion in 2011 GDP of the world's 35 most productive nations. Of 27 of those most productive nations (not counting Greece whose 34.38 percent rate is an outlier) shown here, sovereign 10 year bond yields last week averaged 4.2 percent, implying world wide debt service payments of $2.4 trillion just to stay current.

The US alone spends nearly $0.5 trillion annually in debt service payments, and calls it a victory when $0.04 trillion in spending is cut. Meanwhile deficits and debt continue to build, here and abroad.

GDP growth averaging 3.5 percent per annum is the way out, but the debt burden eats up the progress.

This can't go on forever.