2. 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.
3. 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%.....
4. 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
5. 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!
6. … or if expected inflation rises
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2008 2009 2010 2011 2012
Expected inflation
Real bond yield
Source Gregory Ip, Economist
7. 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.
