The ‘great central bank unwind’ could ignite the next financial crisis.
Deutsche Bank: “Undoing central bank stimulus is a ‘journey into the unknown.”
The #Federal Reserve announced that it will begin preparing the size of its $4.5 trillion balance sheet. Meanwhile, analysts at Deutsche Bank on Wednesday warned that what they have dubbed the “great central bank unwind” is one of several candidates for creating the next financial crisis.
“When looking for the next financial crisis, it’s hard to escape from the fact that we’re seemingly in the early stages of the ‘great unwind’ of global monetary stimulus. This is occurring at the same time as global debt remains at all-time highs. At the government level at least, the increase of debt has been unparalleled in peacetime history.”
The analysts argue that it’s more than a monetary phenomenon. Throwing in the cumulative government budget deficits of the U.S., U.K., Japan and the eurozone since the 2008, they come up with total combined QE and fiscal-stimulus sum of $34 trillion.
“In the end, $34 trillion of stimulus and QE has delivered only very low growth. In addition, they have produced high asset prices around the globe.” “This is unprecedented territory. How can anyone estimate what the fallout will be when we normalize again?”