Analysis: New central bank cash glut risks "monetary anarchy"

Tue Feb 28, 2012 2:28pm EST
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By Natsuko Waki

LONDON (Reuters) - The scale of money printing in the West has become so massive that the world may fall prey to "monetary anarchy," with traces of bubbles appearing everywhere.

At least that's what some critics see in the latest round of cash pumping by major central banks.

It is also an eerily reminiscent of 2011, when similarly generous monetary easing sparked higher oil prices, slowed the recovery and stoked speculative hot money flows into vulnerable emerging markets.

The European Central Bank alone is expected to lend another half trillion euros or more of super-cheap money to banks on Wednesday, following Japan and Britain which have already injected fresh cash. The Federal Reserve has promised to keep interest rates low until 2014 and act further if needed.

There is a sense of deja-vu in financial markets. Just like the last time a wave of money was pumped into the world financial systems in 2011, crude oil - fuelled also this time by Middle East tensions - has jumped 15 percent this year.

As a result, riskier assets such as equities are already coming off new year highs. Rising emerging market currencies are forcing some central banks there to intervene.

The scale of money creation since the onset of the global credit shock can be seen in the size of central banks' balance sheet expansion.

JP Morgan says G4 central bank balance sheets have more than doubled since 2007 to 24 percent of combined gross domestic product and will reach 26 percent this year.   Continued...

Various Euro notes are pictured laying on a table in Warsaw February 24, 2012.  REUTERS/Kacper Pempel