The tools available to central bankers are ill suited to the enormity of the task at hand. So says bond market guru Mohammed El Erian. What are those tasks? De-leveraging indebted banks, households and some corporations – in the property sector for example. Decreasing productivity. The tools being tried – increasing money, loading banks with more assets so they can start lending again – risk the collateral damage of another asset bubble.
Meanwhile – companies still don’t want to invest according to a Deloitte survey of finance directors who say reducing costs and increasing cash flow are their priorities. The balance sheets of large corporates are reported as healthy, access to finance is easier than in the last five years and credit cheaper. But they still won’t invest because they have no confidence in demand and see a ‘scarcity of opportunity’. So cutting costs and trying to grab market share becomes the strategy of the day.