By Xavier Bremner
News that the European Central Bank has extended €529.5 billion ($712.8 billion) in cheap, three-year loans to 800 lenders is a reminder of the extraordinary economic times in which we live. This latest cash injection into Europe’s banking system comes in addition to the €489 ECB handed out back in December, which expanded the central bank’s balance sheet to €2.7 trillion late last year.
Barry Ritholtz recently pulled together some extraordinary charts illustrating the exploding balance sheets not only at the ECB and the Fed, but 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). Here’s a stunning statistic that he notes: The combined size of world’s eight major 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.
Source: The Big Picture
It’s worth remembering how much the global economic recovery, the pause in the European debt crisis and market rally in recent months owes to the ultra-loose credit conditions (near-zero rates and various quantitative easing programs) around the world. At some point, central banks will have to start tightening and that will be a tricky time for investors and markets. Ginning up the money supply is a lot easier than withdrawing liquidity. That will be a big challenge for central bankers around the world later in the decade.
