The global financial system increasingly resembles a madhouse in which the actions of each of the major authorities in charge of monetary policy assume ever more deranged forms.
The central banks of the US, Europe and Japan proceed with reckless disregard for the consequences of policies pursued on behalf of their own national interests at the expense of their capitalist rivals and the world economy as a whole, WSWS (World Socialist Web Site) reported.
On October 31, the governor of the Bank of Japan, Haruhiko Kuroda, made the shock announcement that the country’s central bank was increasing its purchases of government bonds to $750 billion a year.
The scope of the action is indicated by a series of statistics. The Bank of Japan will now be buying bonds at a rate equivalent to 15 percent of the country’s annual gross domestic product (GDP), with its total holdings rising to 80 percent of GDP, a far higher ratio than that of the US Federal Reserve, the European Central Bank or the Bank of England.
The new round of quantitative easing means that the Japanese central bank will be buying more bonds each year than the government issues to cover its debts. Nothing like this has been seen in previous economic history.
Deep Rifts
The Bank of Japan’s decision revealed deep rifts within its governing board, which agreed to the action by the narrowest of margins in a 5-4 vote. This itself is an indication of mounting perplexity in financial circles.
The same phenomenon was in evidence on Thursday when the president of the European Central Bank (ECB), Mario Draghi, announced that the bank’s governing council was now committed to expanding the bank’s asset base by at least €1 trillion. The decision was “unanimous,” but before the meeting there were reports of deep divisions within the council – a North-South divide with Germany and others opposing further action and even talk of a “palace coup” against Draghi.
Cheap Money
In the US, while the Fed has ceased its quantitative easing program, it is continuing to ensure the flow of ultra-cheap money to the financial system, pledging to keep its benchmark interest rate at near-zero for a “considerable time.”
The ECB decision to undertake an asset purchasing program was made on the grounds that it was necessary to lift inflation in the eurozone under conditions of stagnation produced by a severe decline in investment and other spending. But these measures will do little to revive the real economy. Rather, they are aimed at bolstering the position of the European banks, whose real debts are increasing as price levels continue to fall.
The global monetary stimulus programs are being carried out without any consideration of how they might end.
Even though it has ended its bond purchases, the Fed’s balance sheet stands at more than $4 trillion, compared to $800 billion in 2007. Any attempt to reduce this debt and return the Fed to its traditional position of standing outside the markets, rather than being a participant in them, would spark a crisis.
But as long as the money keeps flowing in, and big profits are to be made from speculation, the financial markets act like heroin addicts, enjoying the euphoria of the moment while ignoring the longer-term consequences as underlying economic conditions deteriorate.
But there is growing sense that a day of reckoning is coming.
