Central banks warding off a round of 'lost decades'
Monday, June 25, 2012 10:24 AM
Central bankers are finding it easier to support their economies than to spur expansion as the prospect of Japanese-like lost decades looms across the developed world, according to economists interviewed by Bloomberg.
Another round of loosely correlated global stimulus has begun after the Federal Reserve extended its Operation Twist program and counterparts from Japan to Europe consider more monetary easing of their own.
The rub is that even as they renew their rescue efforts, policymakers are postponing forecasts for fuller recoveries and run the risk that their latest actions pack a smaller punch. This raises the prospect of longer-term anemic expansion akin to the doldrums Japan has suffered since the early 1990s.
"Japan's experience shows central banks can mitigate the worst effects of the current environment, but it's going to be very hard for them to stimulate demand," said Peter Dixon, global equities economist at Commerzbank AG in London. He predicts a lengthy period of "sluggish growth and high unemployment" in the debt-ridden industrial nations.
The combination of economic weakness and policy indecisiveness leaves Jan Loeys, chief market strategist in New York at JPMorgan Chase & Co., recommending gold and U.S. assets, on the hope of greater quantitative easing.
Investors should "position for further monetary action, even if it doesn't do enough," said Loeys, whose colleagues anticipate worldwide expansion of 1.4 percent this quarter -- the weakest since the end of the 2009 recession. Read more.