WHERE ARE CENTRAL BANKS TAKING THE WORLD ECONOMIES…?

24 Jan

WHERE ARE CENTRAL BANKS TAKING THE WORLD ECONOMIES…?

HASA - WORLD ECONOMIC FORUM 333

WHERE ARE CENTRAL BANKS TAKING THE WORLD ECONOMIES…?

Weber in Davos Joins Dimon to Spotlight Easy Money Danger.

The editor responsible for this story: John Fraher* and the

reporter on this story: Simon Kennedy.**

To read the entire article: http://www.bloomberg.com/news/2013-01-23/weber-in-davos-joins-dimon-to-spotlight-easy-money-danger.html

 

The central bankers who saved the world economy are now being told they risk hurting it. “Central banks can buy time, but they cannot fix issues long-term,” former Bundesbank President Axel Weber, now chairman of UBS AG, said in the Swiss ski resort yesterday. “There’s a perception that they are the only game in town.”

Even as the International Monetary Fund cuts its global growth outlook, a flood of stimulus is running into criticism at the World Economic Forum’s annual meeting in Davos. Among the concerns: so-called quantitative easing is fanning complacency among governments and households, fueling the risk of a race to devalue currencies and leading to asset bubbles.

For now, most central bankers are still siding with easy policy as the Fed targets lower unemployment with a third round of asset purchases and the ECB offers to snap up the bonds of cash-strapped countries.

“We are trying to keep a speed limit for our economies which is unsustainable,” said Weber, who quit the Bundesbank partly on concern about the ECB’s decision to buy bonds of Europe’s most indebted countries. “We’re headed into a dangerous environment.”.

While praising central banks for having “saved the system” in 2008 when a financial crisis tipped the world into recession, JPMorgan’s Dimon said the onus should now shift to better fiscal and structural policies from governments.

Dr Doom says quantitative easing will create zombie banks, firms and borrowers. To read about this: http://www.guardian.co.uk/business/2013/jan/23/nouriel-roubini-quantitative-easing-zombie-banks .

Another concern taking center-stage in Davos is whether countries will start tussling for cheaper exchange rates in an attempt to boost their economies through exports.

Currency War

The so-called currency war debate has reignited as Japan’s new prime minister, Shinzo Abe, pushes for laxer monetary policy. The yen has dropped 7 percent against the dollar since the start of December. Bundesbank President Jens Weidmann this week warned against “increasing politicization of the exchange rate” and undermining the Bank of Japan (8301)’s independence.

 

“We’re still in a recovery zone,” Gorman said. “There’s still a lot of muted areas around world, there’s no one running a victory lap just yet.”

**To contact the reporter on this story: Simon Kennedy in Davos, Switzerland atskennedy4@bloomberg.net

*To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

 

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