Major Promises But No Reform
Steen Jakobsen, chief economist at Saxo Bank in Denmark discusses the illusion of cheap money, bond market yields, and the lack of European reform in his latest email.
In Spain, things are going from bad to worse. Last weekend’s local election in Andalucia, where Spain’s centre right People’s Party failed to secure an outright majority, left Prime Minister Rajoy without a mandate to carry on with tough austerity.
It was a bad start to week where we on Thursday will see a major general strike aimed at… Yes, you guessed it: Austerity measures.
Spain 10-Year Bonds and 5-Year CDS
Illusion of Cheap Money
The European story remains one of major promises and no actual reforms. A low interest rate and an extreme sense of “security” created by the illusion of easy money and low interest rates won’t last forever.
As I wrote in Interest rates: the market has it all wrong, we could be on route to an exit strategy from central banks which at a bare minimum will be a goodbye to “unconventional measures” and if so, the low in interest rate cycle is in place.
30 years of Japanisation?
The only way central banks can create a proper exit from unconventional is to hand over the torch to reforms from governments and politicians. Unlikely, yes, needed?
Absolutely, otherwise we are doomed to 30 years of Japanisation.
I concur with the above analysis. What cannot last forever by definition won’t. That includes a market whose only focus at the moment is on the “illusion of cheap money”.
Mike “Mish” Shedlock
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