In response to an FT article by Stephanie Flanders on 28th July 2015, entitled 'The warning signs of trade stagnation'
"If consumption and investment firm up on both sides of the Atlantic, we should start to see global trade pick up as well. But policymakers should not kid themselves that trade is going to rescue them from their domestic economic travails, as it did in the past"
Policy makers should stop kidding themselves we're in a recovery. We're entering a debt deflation phase. The market in junk debt is collapsing, which will reveal the 'mark to fantasy' nature of much of the 'collateral' that underpins global markets. The seven year charade of QE and ZIRP has led to asset price inflation, a massive transfer of wealth, and a zombie economy. Central bankers have not stimulated wealth creation, they have simulated wealth creation.
Greece and Puerto Rico are two canaries in the coal-mine. Soon the crisis will manifest in US Municipalities who will have to acknowledge that they are effectively bust - cities in Illinois will be amongst the first - their pension funds are hopelessly underfunded, in some cases to the tune of over 60%.
Investment isn't picking up because CEOs of large companies keep their jobs by borrowing cheap money to buy back their own stock, whilst many of the SMEs who create much of the world's wealth and employment are not fooled by the pronouncements of politicians and central bankers that things are improving.
Consumption isn't picking up because people are tired of spending money they haven't got on stuff they don't need. Economists may refer to paying off debt as 'savings' and rue the effect this has on aggregate demand, but people who can't print their own money or borrow at ZIRP call it what it is - paying off debt.
Policy makers should stop kidding themselves? Don't wait up.