What Chance Governments and Central Banks will still save markets?

The outlook for markets remains dire.. no worries! But what chance governments, central banks, the economy and growth enablers suddenly turn up the good news and put it all right again…? Are we over-estimating stagflation and recession?

Blain’s Late Morning Porridge 24 May 2022 – What Chance Governments and Central Banks will still save markets?

“When you go looking for rescue, you end up trapped in your own weakness…”

This morning: The outlook for markets remains dire.. no worries! But what chance governments, central banks, the economy and growth enablers suddenly turn up the good news and put it all right again…? Are we over-estimating stagflation and recession?

We had an interesting debate in the office yesterday – while markets stumble and flaff-up-and-down in a continuing downwards spiral on the multiple threats now assailing them, what chance the negativity suddenly reverses and there are reasons to be cheerful again?

3 issues to think about:

  • Politics and Central Banks
  • Trade
  • War


One of the most astute observations in politics was the Bill Clinton slogan “It’s the economy, stupid”. One phrase successfully turned around George Bush’s massive post 1990 Gulf-War approval rating as the US economy stalled ahead of the 1992 elections.

Next year will see the 2024 election cycle heat up in both the US and UK. What chance governments, with the connivance of supposedly “independent” central banks, decide their only hope of hanging on is to reverse the negative economic nihilism around them, and start juicing economic activity with yet more spending, tax-cuts, handouts and pushing for lower rates and a resumption of QE? To have any effect, it will likely happen sooner rather than later..

The inflation hawks and monetary hardliners will scream… but…

You can just imagine the scene in No 10 Downing Street as Boris chokes on the latest polls (showing the Tories at German bond yield numbers) and determines it’s time to spend and bluster his way to victory. You can just picture it – declaring a national economic emergency, huge spending programmes to hold red wall seats boost growth, tax cuts, student debt forgiveness, assassination of key* liberal democrats tax handouts and new democratic Nimby development powers in affluent Southern seats (oh, they doing that already)… and pressure on The Bank of England to do as they are damn-well told to support the programme…

Boris will know it’s an election he may well lose – his only upside being the Labour Party’s ongoing inability to win. (Which is why I may well choose a full-frontal lobotomy in order to vote Liberal Democrat.)

Less of a problem in the US.

If the US economy was drowning, the Republican’s would call a vote to veto the use of lifebelts. Their strategy remains one of encouraging the economy to destroy itself in order they can save it when elected, only to find themselves on the end of the same stick. The opposition Democrats will deny them sticking plasters to treat the gaping flesh wounds inflicted on the economy. Oh, and some senator from God-cares-where will stop everything in order to milk a few more dollars of subsidy for his particular interest…

US checks and balances.. the greatest political system ever. If nothing happens.. what can possibly go wrong?

The gridlock of the US political not-process and its general ineffectiveness may be a primary reason Jamie Dimon, CEO for Life of JP Morgan, is one the wires reminding us the US economy is strong, robust, and able to weather the storm clouds of recession. Sure, it will suffer from inflation and quantitative tightening as rates rise – but nothing to worry about.. move along there, nothing to see, says the head of one of the largest US banks which is pretty much dependent on there not being a devasting recession.. (Just an observation… )

Yet, one of the things I repeatedly here from traders is the hope (described as an expectation) central banks will be forced resume accommodative monetary policy as the multiple crises deepen…. After all, they argue International Central Banking Rescue has saved the global economy on multiple occasions since Ben Bernanke, Mervyn King and Jean-Claude Trichet  set up a save-the-world trading floor under the swimming pool on that deserted tropical island with a rocket launcher in the volcano to drop helicopter money wherever required on the global economy….

Sorry to disappoint you all, but I suspect Thunderbirds are most definitely not Go this time.  The long-term consequences of too much liquidity are now being felt in terms of underinvestment, declining productivity, income inequality and speculative bubbles (these are all topics and causalities I’ve covered multiple times in the Morning Porridge).

Central Bankers know they have the super-power to rescue and save economies, but if they keep applying the accelerator, as has been the case, then the effects become pernicious and create more distortion than benefit. At some point it has to stop – say about 12 years ago. After saving the world in 2008, it might have been a better thing to let the normal business cycle resume in 2010.


The expected reopening of Shanghai next month will paradoxically trigger fresh waves of supply chain instability as Chinese ports fully reopen. It will take months for logistics in terms of shipping, containers, lorries and orders to re-align and be put back in place. It’s not the overnight switch on/off process some economic observers assume it is.

It means months longer for supply shortage to ease, and years of crisis for major western firms, like Apple yesterday, considering where to broaden their production bases. The cost of goods is bound to further rise as supply chains generate scarcity, and that will continue to fuel wage demand expectations, further destablishing economies as workers demand more as they see other workers getting larger settlements.

And then there is the geopolitical issue – which rather depends on how much China wishes to re-engage with the West. Aligning itself with the military ineptitude of Russia has been an embarrassment, but one that has thus far cost them little – thus far. It’s spurred the West into a frenzy of rearmament and common-purpose. Biden’s “slip of the tongue” about military intervention if Taiwan were to be invaded is bound to have set Xi’s minions thinking…

The probability of a more isolationist US economy from 2025 and ongoing posturing across the Asia/Pacific sphere is high. It’s going to further change the global trade focus and continue to de-emphasise ongoing globalisation. That means the return of an inflationary push as the West trying to re-establish manufacturing businesses.

All it will take is a US politician ending every speech with Carthago Delenda Est to make a bad situation worse..


While China and US face off and decide whether to engage (positively or negatively), the situation is Europe will remain fraught.

The Ukraine Energy and Food inflation shocks have been just that… shocks. But they will not be temporary. It will take years to build new infrastructure and redefine energy policies and supply across Europe, spelling a long-term business block.

There will also be significant political consequences. These are already set in motion. Wheat shortages and higher food prices in North Africa may well trigger renewed social upheaval, and trigger a new refugee crisis for Europe, and empower Turkey to demand yet more unreasonable gains. In short, things get trickier rather than better.

The upside for Europe is the realisation they are strong together and have little to fear from Russia. The downside for Europe will be the realisation its political and economic structures – the EU and ECB – remain constructs designed without democracy or any particular path towards it in mind. Trying to adapt these and move forward in a period of high economic tension.. well that will be tricky.  Perversely.. if thing were to get tougher, then that could we precipitate a positive unity surprise in Europe!

The question was – is it likely things get suddenly better and easier? No. Things remain tricky – but that’s not necessarily a bad thing. Taking some of the ongoing stupidity out the market and removing the fluff will be a positive long-term.

*Can anything or anyone Liberal Democrat ever be defined as key, or even anything a smidge higher than utterly pointless and useless? We shall see…

Five Things to read this morning

BBerg – Dimon says “Storm Clouds” Over the US Economy May Dissipate

Torygraph – West braces for Shanghai shock as zero-Covid nightmare ends

Forbes – Apple to ramp up production outside China

FT – How war in Ukraine convinced Germany to rebuild its army

WSJ – Bond’s Descent Stalls Amid Stock Turmoil

Out of time, and back to the day job..

Bill Blain

Shard Capital


  1. Hopefully International Central Banking Rescue will not repeat my experience with a large plastic Thunderbird 2 toy I had a long, long time ago. It survived childhood play but succumbed to adolescent vandalism. Filled with the (not so) carefully extracted contents of some fireworks and ignited in the family farm’s sandpit. A misshapen blob of green plastic was left after a dissapointingly small and smokey explosion.

    • Hah.. I was a Thunderbird 1 boy…. and there are photos of me running round Fox Covert Avenue Edinburgh as Scott pushing my brother in pram nicked from the baby with him pretending to be Virgil driving T2, both of us in full Thunderbirds suits!

  2. Fear of further Fed QE and Treasury helicopter money is keeping me from real investment (i.e. starting small businesses). So I am stuck with the lyrics from the Eagles “After the Thrill is Gone”, “You don’t care about winning, but you don’t want to lose”.

    I think that you described the current practice of American politics better than 90% of Americans could, especially the Republican strategy.

    And I will say it again, Europe had better get its act together on defense and develop some capability. I don’t think that you have to worry about a hostile America but a unsympathetic (towards Europe) America is definitely a possibility.

  3. When will Britain stop egging on the war with Russia? This is your true issue. And for that matter, my country the USA. Biden and Boris are both playing their little Game of Thrones Churchill imitation while their countries burn down around them. Russia will not allow a US proxy army of Nazi’s on their border. Period. This is existential to them. They lost 25 million people to Nazi’s in World War 2. And Russia has actual goods that are worth something. What does Britain have? Financial products. Imagined and hypothecated to 20 places computer entries. While Boris is studying what weapons to send, the railway workers are preparing a strike. Because their workers are starving.

  4. “… is it likely things get suddenly better and easier?” Well if this is an average US market crash, we are only partly there. Average US share crash lasts about 15 months and falls about 43% (obviously depends on when you start counting etc. but good enough estimates for working purposes).

    IF this is a crash and if its an average crash we can expect it to find a bottom around March/April in 2023 or so. We shall see ….

  5. Imagine how powerful Europe would be if Russia was an integral part or the EU….The Mackinder Doctrine

    No wonder the US could not let this happen otherwise it would loose it’s grip on controlling Europe

  6. At least you’re in the UK lol. The FTSE 100 is still at the highs. Imagine being here in the USA – or in a DM market…all are down BIGLY with more to come!!!!

  7. Russia is the largest European nation (by land mass) and has about a third of the Earth’s natural resources. It is not Europe and Russia but just Europe, singular. The propaganda is so pervasive at the moment that they are able to overwrite geography itself, indeed most people in Britain, if asked, would happily tell you that Russia is a non European nation, including, sadly you Bill.

  8. “At some point it has to stop – say about 12 years ago.”
    Should read
    “At some point it has to stop – say about 50 years ago.”
    Check the Current Accounts of the USA and UK. The seeds were sown in the 70’s for both economies to turn to running CAD’s. This tells us that around that point the value of the currency became unhinged from the productivity and production. How? Simple! Instead of a CAD inducing a self-corrective reaction in the economy, by reducing the amount money flowing around, the governments decided tom print up any amounts lost in the CAD. Of course, in time, this went exponential which results in what we have today. Our economies have been hollowed out to a financial mess. Industry is mainly shut down. Real Estate prices are out of control to the extent that families cannot afford a house to live in. Our critical industries are sold to foreign interests. Out Middle Classes are destroyed and we descent into social chaos. “The centre cannot hold” (The Second Coming)
    The answers lie back in time. Indeed, the answers lie much further back in time than Mr Blain considers. Maybe I’m getting too damned old, having watched this process for almost 60 economically aware years!

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