November 15, 2012 The Central Bankers’ Potemkin Village It seems to us that we have already witnessed the peak of political support for austerity and fiscal consolidation. Instead, battle cries for stimulus (read: money printing to finance deficit spending) emanate from the Krugman‐esque disciples demanding more and more cowbell1. Converting all balances to USD, central bankers around the world have expanded their balance sheets beyond $13 trillion, from only $3 trillion ten years ago. Global central banks’ assets now comprise at least a quarter of all global GDP – up from only 10% in 2002. 1 http://en.wikipedia.org/wiki/More_cowbell PBOCECBFederal ReserveBOJ$‐$2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 Jan‐02May‐02Sep‐02Jan‐03May‐03Sep‐03Jan‐04May‐04Sep‐04Jan‐05May‐05Sep‐05Jan‐06May‐06Sep‐06Jan‐07May‐07Sep‐07Jan‐08May‐08Sep‐08Jan‐09May‐09Sep‐09Jan‐10May‐10Sep‐10Jan‐11May‐11Sep‐11Jan‐12May‐12Total Assets of Global Central Banks ($ in Billions)Source: Bloomberg.