Central Banks Fire Warning Shots: Will it be Enough?

The Central Banks of the world have said everything to make us believe that they are standing ready and will act if necessary. They have fired warning shot after warning shot, hoping and praying we will continue to trust them and their monetary policies. They want us to believe that, if push comes to shove, they can save the economy and keep inflation in check. Our team sees this week’s rhetoric as a last ditch attempt to stave off pure panic as economies from the Euro Zone to the US begin to crack under the pressure of multi-year, record high unemployment levels and a contracting manufacturing sector.

Pinnacle Professor Sy Harding published a piece this morning which analyzes the state of central banks perfectly. His analogy is below:

If you go into the woods with a gun and meet an angry bear, and you make a great noise firing off your ammunition but miss the bear, the noise only scaring it off for a while before it comes back at you again, and you keep firing the gun and making a great noise, but continue to miss, the bear catches on, and so do you. You realize you’re almost out of rounds, that firing more will probably be unproductive since you really aren’t a shooter and the rounds don’t go where you aim them. But since just making a noise had been effective in at least scaring the bear away for a while, maybe you can save yourself by just waving the gun and making a lot of noise. You know it’s an act of desperation not likely to succeed - but it might. So it’s worth a try, and what else can you do anyway.

This week central banks and euro-zone officials showed us that is the predicament they’re in.

Guess what? The economy is under siege once again and empty words from the Federal Reserve and ECB will not hold back the flood gates of fear and reality much longer. For the Federal Reserve to alter our reality, if only for the short-term, it will have to take real action. Harding reminds us that the Fed has merely discussed what it could employ and is not even willing to reveal what that may be, let alone take action. Our team and most economists by now know, it can only mean one thing: Additional bond buying and money creation. Draghi was pounding the table just a few weeks ago when Greece and Spain were on the cusp of imploding, commenting that the ECB will do whatever it takes, "and believe me it will be enough".

Harding's response to that was: 

It was enough noise to scare the bear away for several days, but fooled so many times, it only moved into the bushes where it could watch and see if the ECB really had such weapons and would be able to use them.

And it didn’t.


The bear is coming back around. Whether or not central banks will make it until September, before being attacked and mauled to death is yet to be known.


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