June 1st, 2015 09:40 AM
Confidence of Global Economy Drops as Central Banks Continue Stimulation
Manufacturing continues to struggle across the world as governments throw trillions of dollars around to ‘stop the bleeding’. The German Purchase Managers Index came in just below already weak expectations. Though it was a small contraction, it is hard to ignore considering the amount of money that has already been spent to increase economic stimulus.
French manufacturing made very little improvement but is still clearly in a contraction mode.
Even though the 1 trillion dollar stimulus plan in Europe was implemented over three months ago, the results from this program implemented by the European Central Bank has shown very little results thus far.
The US has been stimulating the economy through many tax payer funded programs since basically the beginning of 2008. The ECB just recently initiated its stimulus to help their slow growth and now China is about to start another stimulus plan totaling $1.13 trillion dollars, the biggest stimulation package ever.
On May 28th, 2015 Reuters reported that Libya is on the verge of an economic and financial collapse. This came directly from the UN Envoy.
The Gaurdian recently reported that South Sudan is on the verge of economic collapse which will likely lead to famine, continued fighting and the real possibility of inflation.
But what does all this mean?
I think what we can take from all of this, is the major world economies are trying to stimulate their countries to the number one spot. Pay to Play on a global level. But if you can’t play, you will surely pay.
Raghuram Rajan used to be the Chief Economist for the International Monetary Fund and now Governor of the Reserve Bank of India said recently;
“I fear that in a world with weak aggregate demand, we may be engaged in a risky competition for a greater share of it.”
“ We are thereby also creating financial sector risks for when unconventional policies end.”
So how much will central banks and governments continue to spend? Will they run out of money to throw into the stimulus pot? What will happen when the stimulus spending stops?
The World has never seen such a vast influx of funds by so many governments and who can really be sure their efforts will have any effect, or just prolong the inevitable. I guess we will just have to wait and see.