Why, with an unemployment rate practically halved compared to 2009 and a few decimals away from full employment, does the Fed appear increasingly aggressive and expansionary? Why is the ECB, with full employment in Germany and under the stern gaze of German public opinion, preparing for the end of the year Quantitative easing, a measure it has never wanted to adopt in recent years? It is not the shadow of the last crisis that makes policy makers lose sleep, but that of the next one.
Here we don't want to analyze how right or wrong this fear is, nor are we too interested in understanding whether the policy actions that are following it and will continue to follow it in the coming years are the most correct response. We just want to immerse ourselves in their heads and try to understand what their eyes see and what their heads consequently think.
Today the markets look at themselves, congratulate each other and congratulate each other. Governments, for their part, are in a hurry to declare the crisis closed forever and are spreading optimism. Central bankers, in their solitude, instead see the possibility of a crisis even more devastating than that of 2008-2009.
What are the compromised immunity that policy makers think they see that the markets have forgotten? They are demographics, disappointing productivity, very high debt levels and low inflation.
If Saudi Arabia didn't have oil it would be a very poor country. If the United States did not have the boom in unconventional gas and oil, this blessing occurred precisely in the years immediately following 2008, its growth, already now weaker than in the years preceding the crisis, would be even lower and two million jobs (destined to become three by the end of the decade) would be missing.
The energy boom had the grace to occur, more or less a month, when the Baby Boomers population began to move towards retirement and rapidly deteriorate the demographic profile of the labor market on the one hand and the social security and health accounts on the other.
The Obama administration must be acknowledged for having set aside environmentalist scruples (diverted to the fight against coal, extracted in Republican states) and for having embraced the life preserver that fell from the sky. If we had chosen differently, like the European one, we would have a world price of oil 10-20 dollars higher and an American economy unable to drive the tepid global acceleration underway.
As for productivity, the leap was great, in 2009-2010, when companies learned to produce what they were producing before the crisis with millions of fewer workers. Once the situation stabilized, however, productivity, not being nourished by investments, fell towards zero.
Low growth has led a generation of young people to stay longer with their parents, to postpone starting a family, buying their own home and has therefore in turn reduced population growth, which has also been affected on a further front that of immigration. Older people, fewer children and fewer immigrants, three situations that are expected to persist in the next decade, have led some economists to drastically cut the potential growth of the American GDP.
The third horseman of the Apocalypse is the level of debt, globally increased by 30% compared to before the crisis and growing strongly precisely in the weak points of the system. We hardly notice this because zero rates have made debt service very light, but the vulnerability to the possibility of rising real rates is maximum, global and systemic.
Low inflation is the fourth big nightmare for many policy makers, because it raises real rates and does not deflate the existing stock of debt. Low inflation also forces central banks to keep nominal rates at zero and makes it impossible to lower them further in the event of a relapse.
Seen in this way, therefore, the world that enters the next crisis will have less productivity, less growth, much more debt (this time also in emerging countries, even if it is private debt) and less inflation than in 2007. Central bankers , for their part, will have much less room to cut rates.
Once these glasses are on, many things become clear. Central banks want, very badly, more inflation. They also want this inflation to grow faster than rates, so that real rates are increasingly negative.
If the market meekly accepts increasing levels of financial repression, fine, otherwise it will proceed by authority. At the European level, measures for the temporary zeroing of coupons on public securities are being studied, while the Fed is discussing the introduction of an exit tax for those who want to sell funds in times of market crisis.
It is not only the negative side of this mindset of policy makers that needs to be seen. The positive side is the maintenance of monetary policies which, with the fall in real rates that inflation will make possible, will be increasingly expansionary. The hope is that lymphocytes will start to rise again, that older children will leave the house and give birth to grandchildren, that companies with worn-out machinery will finally decide to invest. Never mind if there will be a stock market bubble (provided it's not so big that it generates too much volatility). And never mind if the holders of fixed income suffer a tougher financial crackdown.
