Fed, ECB Action Key Moment in Downfall of West: Pro
Federal Reserve and European Central Bank monetary stimulus measures are more likely to impede growth than aid it, Nomura strategist Bob Janjuah said on Tuesday, adding that central banks' recent actions would be seen in future as a key moment in the downfall of Western superpowers.
In a research note Janjuah said recent moves by the Fedto launch a third round of quantitative easing (QE3) and by the ECB to buy unlimited quantities of sovereign bonds were a cause for great worry.
"What really concerns me is that their only responses are to effectively say 'we give up', as they abandon the search for 'real' solutions to our ills. Instead, by their actions, we can now clearly see that the only solutions offered by the Fed and the ECB are the extension of the same failed policies that got us into our financial and economic despair in the first place," he wrote.
“All I think we are likely to end up with is weaker growth, as consumers are forced to save more and as they see their disposable real incomes fall,” said Janjuah, who is known for his ultra-bearish views.
“The idea that consumers and/or corporates will now go on a leverage and consumption/investment/spending binge is based on nothing more other than hope — I actually expect the opposite to occur.”
"When future historians look for the day the West lost its status as a global economic superpower, and for the day the West lost its aspirational leadership in terms of sound economic and prudent financial system management, I feel that September 2012 may be seen as a significant pivot point," he said.
He added that the U.S.’s recovery from the 2008 financial crisis has been wrongly attributed to the Fed’s first round of quantitative easing. “The real drivers were TARP (real fiscal loosening) and the $4 trillion fiscal and bank-financed investment binge seen in China from late 2008.”
He warned that U.S. President Barack Obama wins a second-term in the November presidential election, Republicans might blame his victory on positive sentiment from the Fed’s latest move.
“A Republican Congress will have little to lose and lots to gain potentially by triggering a fiscal crisis, if they conclude [Fed Chairman] Bernanke has become a political servant of the Democrats,” he said.
Janjuah’s fears that Republicans could interpret Bernanke’s action as politically motivated echoed his own concerns about ECB President Mario Draghi.
“Draghi is deeply political and is prepared to use the ECB to further his own political agenda of a federal Europe,” he said.
Janjuah’s comments come the day after Pimco co-Chief Investment Officer Bill Gross weighed-in on bond-buying by central banks via Twitter.
“Central banks are where bad bonds go to die. Sell bad bonds, buy good ones. Investing sometimes can be very simple,” Gross said via Pimco’s Twitter account on Monday evening. (Read More: Where Bad Bonds Go to Die)
— By CNBC.com's Katy Barnato
