May 03, 2016
Complacency in Uncharted Waters
Solely relying on monetary policy for market stability is inherently destabilizing, and yet central bankers continue to deploy aggressive monetary policy with no end in sight. The Fed’s balance sheet in pre-crisis 2007 was just 6 percent of nominal gross domestic product (GDP); today it is 25 percent. The European Central Bank’s (ECB) balance sheet has gone from 13 percent to 26 percent of euro zone GDP in that same time period. The Bank of Japan is on another monetary planet entirely, having grown its footings from 22 percent to 77 percent of GDP over that same timeframe. The result is an eerie calm in the market, but under these still waters lurks a leviathan.