Gnostam Economics briefing May 2013

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Gnostam Economics briefing May 2013

  1. 1. Economics BriefingGnostam Monthly Economics BriefingMay 2013The impact of the end of QE3
  2. 2. Europe Battles Long-term ChallengesEurope’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.  
  3. 3. QE is ending worldwide—  Recovery in housing is driving this;—  Gold price down, but at $1,300/oz is still half ofvalue in real terms i=of 1980’s peak;—  Cash out of in I-shares SPDR Gold trust, meansreal economy has more potential for real returns,[280 T increase 2012, 177T decrease in Q1 2013];—  Industrials in US increase profits, have greatbalance sheets, but growth in sales is a problem,>1%.....
  4. 4. A lot of QE benefit swallowed upGap between mortgage rate paid by homeowner,and yield on mortgage bondSource: http://www.newyorkfed.org/research/conference/2012/mortgage/primsecsprd_frbny.pdf
  5. 5. Does QE cause inflation?Printing money causes inflation only if the moneyis lent & spent …6.506.706.907.107.307.507.707.902008 2009 2010 2011 2012$trn0.00.51.01.52.02.53.0Money supply(right axis)Bank credit(left axis)Source: Gregory Ip, Economist. Shows the extent of bank solvency problem!
  6. 6. … or if expected inflation rises-1.5-1.0-0.50.00.51.01.52.02.53.03.52008 2009 2010 2011 2012Expected inflationReal bond yieldSource Gregory Ip, Economist
  7. 7. Conclusion—  Democracies in advanced are addicted to nominalgrowth, not real growth!—  Money supply has bought time for the adjustmentin living standards;—  Now it is up to developed world to create realeconomy wealth, and that is very difficult in today’seconomic environment;—  Banks role at center of developed economies willhave to change [= regulated], as have not been ableto fund growth, just asset bubble lending.

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