A false sense of security might come about when liquidity injections and zero interest rate policies disguise risk.

Today, the risk is more evident as not only have we seen large downgrades to consensus growth estimates and central banks' expectations of GDP and inflation but leading indicators also point to a much weaker economy ahead.

There have been events that are too hard to ignore for the world economy. A massive China stimulus inflating risky assets and commodities.

Poor macro and earnings data, yield curve inversions. Fifteen economies now have 30-year yields lower than LIBOR overnight rates. Financial repression is at all-time highs while leading indicators point to a growing risk of recession.

In the first quarter of 2019, stocks have gained $9.3 trillion in market capitalisation and bonds have added almost $2 trillion in value.

Global trade growth, machine equipment orders and manufacturing indices remain poor while according to the Bank of International Settlements, debt soars to another record-high of $244 trillion.

The difference this time to the 2008 financial crisis is that the excess risk is hidden under central banks' balance sheets and will continue to do so.

If risk is hidden under a recurrent money supply-growth quilt, why should we worry? Well, ultimately, it seems to be leading to a slow, painful and persevering zombification of the global economy. And as the evidence of stagnation rises, governments get more nervous.

Many economists defend the zombification of economies under a false social principle. Japan being the centre of attention in this respect.

Economists give merit to Japan's low unemployment but it has nothing to do with monetary and fiscal policy yet everything to do with demographics and lack of immigration.

Japan's low cost of debt is not a blessing but a result of using the savings of citizens to continue to not prevent the country from spending more than 20% of its budget on interest expenses.

It is no wonder that Japanese citizens don't spend or invest as much as their central planners would want them too. Clearly, they suspect that the government is going to confiscate wealth through monetary and fiscal means at some point.

An endless debt machine makes the economy less dynamic, and stagnation is guaranteed. That being said, the strength of the yen and the low cost of Japanese debt are only supported by the high level of international reserves and strong financial flows of the country.

The fact that Japan has survived two decades of stagnation with the wrong Keynesian policies should not be an excuse to do the same, but an opportunity to do the opposite.

The idea that Quantitative Easing has failed to spur meaningfully sustainable growth and healthy recovery of the world economy is correct. The thought that the mistakes of quantitative easing are solved by outright currency printing and more government herding out of the productive economy is simply absurd - do not correct mistakes with a bigger mistake.

This article was issued by Maria Fenech, investment management support officer at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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