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Helicopter Ben is not alone in the skies

Posted by Richard on January 28, 2012

If you’re not concerned about inflation, a set of graphs at The Big Picture may change your mind. They show the balance sheets of the world’s eight largest central banks: the European Central Bank (ECB), the Federal Reserve (Fed), the Bank of Japan (BoJ), the Bank of England (BoE), the Bundesbank (Germany), the Banque de France, the People’s Bank of China (PBoC) and the Swiss National Bank (SNB). They were posted by James Bianco of Bianco Research, who summed up the information succinctly in the first sentence of his post:

The degree to which central banks around the world are printing money is unprecedented.

The combined size of these eight central banks’ balance sheets has almost tripled in the last six years from $5.42 trillion to more than $15 trillion and is still on the rise!

Prior to the 2008 financial crisis, the eight central bank balance sheets were less than 15% the size of world stock markets and falling.  In the immediate aftermath of Lehman Brothers’ failure, these eight central bank balance sheets swelled to 37% the capitalization of the world stock market.  But keep in mind that the late 2008/early 2009 peak was due to collapsing stock market values combined with balance sheet expansion via “lender of last resort” loans.

Recently, the eight central bank balance sheets have spiked back to 33% of world stock market capitalization.  This has come about not by lender of last resort loans, but rather by QE expansion (buying bonds with “printed money“) even faster than world stock markets are rising.

So how long can these eight helicopters keep dropping trillions of dollars in newly printed money all over the world before we need a wheelbarrow-full to buy a few days’ groceries? No one knows. But if ever there was an argument for fleeing to hard assets (gold, silver, platinum, …), these charts are it. Sometime down the road, gold at $1700 per ounce is going to look like a bargain.

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