作者：謝國忠 | 评论(0) | 标签:经济学家, 央行, jackson, hole, 谢国忠
Economists congregate in Jackson Hole, Kansas, in August every year to discuss economic affairs of the world. It is a prominent event because mere economists could brush shoulders with central bankers, especially the chairman of the Fed. The central bank heads to economists are like supreme court justices to lawyers. They are worshipped like buddhas. The Jackson Hole is like a buddha bazzar where you can worship your favorite buddha or all of them at the same time. Ordinary people pray to buddhas for earthly benefits like kids passing college entrance exams or good health for parents. At Jackson Hole, there is only one wish: keep the free lunch going.
The fanfares at Jackson Hole this year couldn't cover the crisis facing macroeconomics in general and central banking in particular. Central banking experienced a golden era after Alan Greenspan took the throne at the Fed. He danced with capital markets throughout his tenure and managed the economy through liquidity. He made the financial markets believe his power in smoothing economic cycles. It emboldened the markets to take more risks, i.e., borrowing to buy risk assets like stocks, bonds, and properties. The US financial sector debt increased 755% between 1987-2007, reaching 100% of the US's GDP.
Financial institutions have debts in addition to customer deposits. It is supposed to be like working capital for businesses in other industries. They need to fund inventories for servicing customers. But, 100% of GDP? Asian punters surely know what it means: it's financing speculation. The Wall Street has been borrowing from central banks for betting in risky assets. With so much borrowed money in risk assets their valuation is lofty too. Through the wealth effect on consumption and cheap capital effect on investment Greenspan managed to smooth economic cycles. As more liquidity is injected in each downturn, the price for smoothing is rising leverage. Essentially, the whole Greenspan cycle smoothing was one big bubble.
The economic difficulties that the world is facing today is essentially all the problems that it should have coped with but covered up by the bubble over the past two decades. It is understandable that the problems should be so big and difficult to deal with. It is sad to see that many economists still argue for the same Greenspan policy to cure them. Fiscal or monetary stimulus means more debt either on the government or private sector balance sheet. It's not like the world is deleveraging too fast, which may justify policy-driven leveraging to cushion the blow. Leverage is stll rising in the world. The US non-financial sector debt reached a record high of $35 trillion in the first quarter of 2010. The financial sector debt has declined. But the reduction is really the withdrawal of the emergency funding during the crisis. The current level of $15 trillion is the same as that in the third quarter of 2007 when the subprime crisis began.
One interesting issue is where the financial sector debt is. Its surplus reserves with the Fed have risen much. But it is still a fraction of the total. Most perhaps is in financial instruments that are yet to mature. I suspect that a lot has flown into the bond market. The US government is running a deficit of 10% of GDP. But the treasury yield has plunged. There are many theories on why it is so. Deflation expectation is one. I'm afraid it is just old fashioned arbitrage, borrowing at near zero interest rate from the Fed and earning 2-3% more on the treasuries. It is likely another bubble. Pension funds are led down the same path. The OECD pension funds lost 20% in the last crisis and could easily be persuaded to hide in the supposed safety of government bonds. They are probably being led to a slaughter house again. When this bubble goes, how could they ever pay the pensioners? Aging is the long-term economic challenge for the world. The OECD countries will have one retiree for 1.7 workers (if they work) by 2020.
Elsewhere, I can't see any significant economy with total debt declining. With public sector deficits at 5-10% of GDP the developed economies are leveraging up across the board. Considering how grim their future is, is it responsible to borrow more for propping up their economies today. Emerging economies are putting up loads of debt. Their growth prospects are much better. One could argue that they would grow out of their debt problem. But, so much of the debt growth is for pumping up property prices, not for physical investment. How could their gowth prospects improve with such debt? I'm afraid tha they are just creating a debt bubble to support their economies when the external demand is weak due to the bursting of the debt bubble in the west.
The best excuse for printing money is no inflation. Greenspan was really lucky in that regard. Globalization was disinflationary during his reign as the prices of manufacturing foods trended down from the US cost level to China's. Globalization is now inflationary, as the prices of manufacturing goods are at China's cost level. And the level is rising with China's labor shortage. Someone argued at a Jackson Hole event that inflation always declines in a recession with the exception of the 2004 one. That exception is unfortunately the rule now. The emerging market boom caused the prices in the west to rise during that recession. As the emerging economies continue to inflate, the developed economies will soon catch it too.
The current policy mistake of curing structural problems with stimulus could lead to a worse crisis than the last one. When inflation explodes the government bond bubble, western pension funds could all go into default. Old populations in the west mean that they cannot earn their way back to fill the pension hole. The OECD countries could experience severe social instability. The central bankers could have dug a hole in Jackson Hole too deep for the world to fill ever.
“要翻墙，用赛风”.
