from Ambrose Evans-Pritchard:
Bears beware. A monetary revolution is underway.
They are tearing up the script, embracing the new creed of nominal GDP targeting (NGDP), a licence for yet more radical action.
The side-effects of this currency warfare — or “beggar-thy-neighbour’ policy as it was known in the 1930s — is an escalating leakage of monetary stimulus into the global system.
So don’t fight the Fed, and never fight the world’s central banks on multiple fronts.
Stock markets have already sensed this, up to a point, lifting Tokyo’s Nikkei by 23pc and Wall Street by 10pc since June.
The New Year ritual of predictions is a time for bravado, so let me hazzard that the S&P 500 index of stocks will break through its all time high of 1565 in early 2013 — mindful though I am of flagging volume and a wicked 12-year triple top.
The headwinds of deleveraging will return with gale force. The glut of excess global savings that lay behind the great crisis of 2008-2009 — and that has kept us stuck in the Long Slump ever since — is still getting worse. The international trading system remains badly out of kilter.
There is chronic overcapacity across global industry and not enough demand to carry a full cycle of economic expansion, or to reach “escape velocity” as they say these days.
Until that changes, every global rebound is doomed to disappoint within a few quarters, and that includes the cyclical upswing of 2013.
The world savings rate averaged 21.7pc in the early Noughties (IMF data). It was 23.1pc in 2010, 23.9pc in 2011, 24pc on 2012, and is expected to rise to an all-time high of 24.6pc in 2013, and then to a fresh peak of 25.5pc by 2015.