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Opinion
Robert Burgess

When Free Money No Longer Appeals, Watch Out

Lack of loan demand leads financial commentary. Plus OECD growth downgrades and a slowdown in buybacks.

Thanks, but no thanks.

Thanks, but no thanks.

Photographer: Simon Dawson/Bloomberg

Further evidence was on full display Thursday that top central banks are doing little more than pushing on a string in an attempt to spark their economies by flooding the financial system with ever more cash. The European Central Bank’s offer to provide money to lenders free resulted in it handing out just $3.4 billion euros ($3.8 billion), far less than estimates of 20 billion to 100 billion euros, according to Bloomberg News.

The result is a clear message from banks that there’s just no real demand for loans from their customers, no matter the cost. This is a sad referendum on the outlook for the economy, and not just in the euro zone. Also on Thursday, the Paris-based OECD said it cut almost all the economic forecasts it made just four months ago as protectionist policies take an increasing toll on confidence and investment and risks continue to mount on financial markets, according to Bloomberg News’s William Horobin. It sees world growth at a mere 2.9% this year, the least since the financial crisis. And that comes after years of extraordinarily easy monetary policies in which central banks flooded the global financial system with cash. The collective balance-sheet assets of the Federal Reserve, ECB, Bank of Japan and Bank of England have risen to 35.3% of their countries’ total GDP, up from about 10% in 2008, data compiled by Bloomberg show. The inability of the global economy to reach escape velocity with so much easy money sloshing around is hardly the up arrow for riskier assets such as equities and corporate debt that it once was. Yes, the MSCI All-Country World Index is up a healthy 15.8% this year, but that’s largely a function of a favorable starting point after global stocks plunged at the end of 2018. Expanding the horizon a bit shows the MSCI benchmark is flat the last 12 months and  still hasn’t recouped the highs set in January 2016.