Central banks light the fuse

Central banks are in overdrive, red blood corpuscles pumping. QE 'over-the-horizon' is the play. There are variations in style but the game is essentially the same: ensure abundant liquidity at the core of the financial system. Numerous targets are deployed but the ultimate objective is to re-stimulate spending. I created an indicator based on excess manufacturing and labour capacity in the US. Even if some capacity is left permanently obsolete, there appears to be plenty of space to accommodate a big pickup in demand. So far the indicator has retraced from record lows only to the point where previous recessions ended. Some economists are calling for a nominal GDP target i.e. a combination of inflation plus real growth. Don't worry about inflation, they say, it's a long way off. For now I share this view. What I see is the winding up of a new global cycle, ultimately likely to end in tears, but which for the moment is actually accompanied by a high degree of scepticism. The wall of worry remains - this is usually good for risk assets. We are some way from buy-in and even further away from euphoria. But the almost unlimited licence now claimed by central banks is setting the charge for the next bubble. Recently we've seen a spate of articles claiming that irresponsible bankers and the private sector should not have sole right to driving the new cycle. Rather, the public sector is equally if not more entitled, especially when it comes to creating new capacity, sorely needed around the world. And why shouldn't central banks buy the paper government issues to fund this? This theme looks set to run and run. Japan's central bank funding of state spending in the 1930s has already risen like a phoenix and the arrival of Mark Carney from Canada at the Bank of England looks set to take the idea another step further. Carney was born in Canada's Northwest Territories. The QSL is from Cambridge Bay Aeradio in NWT, Canada. This remote station, using 5 kW, was heard in Johannesburg in 1991 in contact with transcontinental aircraft.