Russell Napier writes…
The US savings rate is rising and China’s foreign exchange reserves are not. For some these will seem to be irrelevant facts in a world where the focus is on the seemingly more urgent issue of growth. For this analyst the rise in the US savings rate and the only moderate growth in China’s foreign reserves are much more important. Their importance resides in the fact that they point to the growing impotency of monetary policy at a time of weak growth.
Investors have, like Pavlov’s dogs, begun salivating as they see the global growth slowdown as the ringing of the bell that signals monetary rewards for asset owners. This bell has been wrung many times since 2009 and the monetary meat that followed has provided a sumptuous feast – at least for those who own assets. Such meat has been in ample supply now for over a decade. But now it is being
delivered when the condition of China’s external accounts is dictating tighter, not easier monetary policy to the world’s second largest economy, and when the citizens of the US have decided to save more. These are profound changes which will mean, given that the world’s debt-to-GDP ratio has risen steadily in the past decade, that the next time the central bankers act, it may be merely the ringing of the bell and disappointment that follows.
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