What if the bazooka is shooting blanks?
Since the financial crisis, it has been gospel for many investors that some combination of actions by central banks - bond buying, bold promises or flirtations with negative interest rates - would be enough to keep the global economy out of recession.
But investors' distress over the latest volley by a major central bank, the surprise decision on Thursday by the Swedish central bank to lower its short-term rate to minus 0.50 per cent from minus 0.35 per cent, has heightened fears that brazen actions by central bankers are now making things worse, not better.
Markets generally embrace conviction and run away from indecision - which is what many see in the policy making of some of the large central banks these days.
The Swedish central bank, the Riksbank, for example, has been criticised in the past for prematurely raising rates, and Thursday's rate cut was opposed by two bank deputies.
At the European Central Bank, Jens Weidmann, the head of the powerful German Bundesbank, remains at odds with the president, Mario Draghi, in terms of how loose the central bank's policies should be.
And in the United States, the Federal Reserve is seen by some market participants to be wavering in its commitment to higher rates in light of the market turmoil.
Speaking to Congress, Janet L Yellen, the chairwoman of the Fed, sought to dispel the notion that interest rates might be headed anywhere but up.
"We will meet in March, and our committee will carefully deliberate about what impact these developments have had," she said, referring to turmoil in the markets.
On Thursday, the benchmark Standard & Poor's 500-stock index closed down 1.2 per cent, after falling as much as 2.3 per cent earlier in the day. The Dow Jones industrial average fell 1.6 per cent to 15,660.18. Earlier, European stocks declined sharply. Stocks in Frankfurt closed down 2.9 per cent and stocks in London fell 2.4 per cent.
Japanese markets continued the sell-off on Friday, with the Nikkei 225 index down as much as 5.3 per cent midday.
The price of crude oil slipped to $26.21. Gold rose to $1,247.90 an ounce, and the yield on the benchmark 10-year Treasury note fell to 1.66 per cent, from 1.67 on Wednesday.
The move by the Swedish central bank was intended to counter the dual threat of deflation and an appreciating currency, which poses a threat to the country's export-driven economy.
But many investors saw the rate cut as smacking of desperation and the latest sign that global central bankers are moving toward a round of competitive devaluations - also known as currency wars - as a way to stimulate their economies.
"What central bankers are doing now feels like a Jedi trick," said Albert Edwards, global strategist for Societe Generale in London. "Everyone is in a currency war and inflation expectations are collapsing."
In other words, drastic steps by central bankers in Europe, Japan and China to keep their currencies weak and exports strong may not only be counterproductive in terms of stimulating global growth - someone has to buy all those Chinese and Japanese goods - but has other consequences as well.
Negative interest rates, for example, are not only bad for bank profits and lending prospects, they can also make savers more fearful, hampering the central aim, which is to get people to spend, not hoard.
All of which can lead to a global recession.
A perma-bear like Edwards is always in possession of a multitude of negative economic indicators to prove his thesis, which, in his case, is a fall of 75 per cent in the S&P 500 from its peak last summer.
Some are obvious and have been highlighted by most economists, like the increasing interest rates on corporate bonds in the United States - both investment grade and junk.
But he also pointed to a recent release from the Fed that showed that loan officers at United States banks said that they had been tightening their loan standards for two consecutive quarters.
"You tend to see that in a recession," Edwards said.
His prediction of a so-called deflationary ice age is still considered a fringe view of sorts, although he did say that a record 950 people (up from 700 the year before) attended his annual conference in London last month.
Still, the notion that the global economy has not responded as it should to years of shock policies from central banks is more or less mainstream economic thinking right now.
Within the International Monetary Fund, which has been regularly downgrading global forecasts over the last year, economists have begun to express concern that the growth problems of large emerging markets like China, Brazil, Turkey and South Africa are going to persist for the long term.
Increasing levels of debt and the inability of governments in these countries to put in place long-lasting reforms, especially at the private sector level, will keep growth rates much lower than they should be.
That could mean that this convergence with developed economies that emerging market bulls have long predicted could face quite a long delay and perhaps, in some cases, not even materialise.
The well-known bond investor William H Gross of Janus Capital took up this theme in his latest investment essay, arguing that there was no evidence to show that the financial wealth (and increased levels of debt) created by a long period of extra-low interest rates would spur growth in the real economy.
As proof, he cited Japan's persistent struggles to grow despite near-zero interest rates; subpar growth in the United States; and emerging market problems in China, Brazil and Venezuela.
"There is a lot of risk in the global financial marketplace," Gross said in an interview on Thursday. "It is incumbent on me to focus on safe assets now."
For the time being at least, investors seem to agree. Over the last few days they have been pouring money into exchange-traded funds that track gold stocks and United States Treasury bills.
Riskier securities like emerging market stocks; European banks, where fears over bad loans are growing; and high-yield corporate bonds have suffered.
Low oil prices, cheap Chinese exports and negative interest rates may smell like recession to some, but economists with a more optimistic bent see these trends as a tremendous gift to the consumer.
Charles Dumas, the chief economist for Lombard Street, an independent research house based in London says that consumers in Europe and the United States will not hoard their gains but instead spend them on houses, cars and other items.
"This idea that consumers are not spending is just wide of the mark," Dumas said. Perhaps the full effect won't be felt immediately, he added, but over time it will.
The world's central bankers certainly hope he is right.
©2016 The New York Times News Service
Since the financial crisis, it has been gospel for many investors that some combination of actions by central banks - bond buying, bold promises or flirtations with negative interest rates - would be enough to keep the global economy out of recession.
But investors' distress over the latest volley by a major central bank, the surprise decision on Thursday by the Swedish central bank to lower its short-term rate to minus 0.50 per cent from minus 0.35 per cent, has heightened fears that brazen actions by central bankers are now making things worse, not better.
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Global stock markets sank, the price of oil plunged to a 13-year low and investors fled to safe haven instruments like gold and United States Treasury bills.
Markets generally embrace conviction and run away from indecision - which is what many see in the policy making of some of the large central banks these days.
The Swedish central bank, the Riksbank, for example, has been criticised in the past for prematurely raising rates, and Thursday's rate cut was opposed by two bank deputies.
At the European Central Bank, Jens Weidmann, the head of the powerful German Bundesbank, remains at odds with the president, Mario Draghi, in terms of how loose the central bank's policies should be.
And in the United States, the Federal Reserve is seen by some market participants to be wavering in its commitment to higher rates in light of the market turmoil.
Speaking to Congress, Janet L Yellen, the chairwoman of the Fed, sought to dispel the notion that interest rates might be headed anywhere but up.
"We will meet in March, and our committee will carefully deliberate about what impact these developments have had," she said, referring to turmoil in the markets.
On Thursday, the benchmark Standard & Poor's 500-stock index closed down 1.2 per cent, after falling as much as 2.3 per cent earlier in the day. The Dow Jones industrial average fell 1.6 per cent to 15,660.18. Earlier, European stocks declined sharply. Stocks in Frankfurt closed down 2.9 per cent and stocks in London fell 2.4 per cent.
Japanese markets continued the sell-off on Friday, with the Nikkei 225 index down as much as 5.3 per cent midday.
The price of crude oil slipped to $26.21. Gold rose to $1,247.90 an ounce, and the yield on the benchmark 10-year Treasury note fell to 1.66 per cent, from 1.67 on Wednesday.
The move by the Swedish central bank was intended to counter the dual threat of deflation and an appreciating currency, which poses a threat to the country's export-driven economy.
But many investors saw the rate cut as smacking of desperation and the latest sign that global central bankers are moving toward a round of competitive devaluations - also known as currency wars - as a way to stimulate their economies.
"What central bankers are doing now feels like a Jedi trick," said Albert Edwards, global strategist for Societe Generale in London. "Everyone is in a currency war and inflation expectations are collapsing."
In other words, drastic steps by central bankers in Europe, Japan and China to keep their currencies weak and exports strong may not only be counterproductive in terms of stimulating global growth - someone has to buy all those Chinese and Japanese goods - but has other consequences as well.
Negative interest rates, for example, are not only bad for bank profits and lending prospects, they can also make savers more fearful, hampering the central aim, which is to get people to spend, not hoard.
All of which can lead to a global recession.
A perma-bear like Edwards is always in possession of a multitude of negative economic indicators to prove his thesis, which, in his case, is a fall of 75 per cent in the S&P 500 from its peak last summer.
Some are obvious and have been highlighted by most economists, like the increasing interest rates on corporate bonds in the United States - both investment grade and junk.
But he also pointed to a recent release from the Fed that showed that loan officers at United States banks said that they had been tightening their loan standards for two consecutive quarters.
"You tend to see that in a recession," Edwards said.
His prediction of a so-called deflationary ice age is still considered a fringe view of sorts, although he did say that a record 950 people (up from 700 the year before) attended his annual conference in London last month.
Still, the notion that the global economy has not responded as it should to years of shock policies from central banks is more or less mainstream economic thinking right now.
Within the International Monetary Fund, which has been regularly downgrading global forecasts over the last year, economists have begun to express concern that the growth problems of large emerging markets like China, Brazil, Turkey and South Africa are going to persist for the long term.
Increasing levels of debt and the inability of governments in these countries to put in place long-lasting reforms, especially at the private sector level, will keep growth rates much lower than they should be.
That could mean that this convergence with developed economies that emerging market bulls have long predicted could face quite a long delay and perhaps, in some cases, not even materialise.
The well-known bond investor William H Gross of Janus Capital took up this theme in his latest investment essay, arguing that there was no evidence to show that the financial wealth (and increased levels of debt) created by a long period of extra-low interest rates would spur growth in the real economy.
As proof, he cited Japan's persistent struggles to grow despite near-zero interest rates; subpar growth in the United States; and emerging market problems in China, Brazil and Venezuela.
"There is a lot of risk in the global financial marketplace," Gross said in an interview on Thursday. "It is incumbent on me to focus on safe assets now."
For the time being at least, investors seem to agree. Over the last few days they have been pouring money into exchange-traded funds that track gold stocks and United States Treasury bills.
Riskier securities like emerging market stocks; European banks, where fears over bad loans are growing; and high-yield corporate bonds have suffered.
Low oil prices, cheap Chinese exports and negative interest rates may smell like recession to some, but economists with a more optimistic bent see these trends as a tremendous gift to the consumer.
Charles Dumas, the chief economist for Lombard Street, an independent research house based in London says that consumers in Europe and the United States will not hoard their gains but instead spend them on houses, cars and other items.
"This idea that consumers are not spending is just wide of the mark," Dumas said. Perhaps the full effect won't be felt immediately, he added, but over time it will.
The world's central bankers certainly hope he is right.
©2016 The New York Times News Service