“It’s beginning to become clear from the data that we look at that US companies in particular are beginning to overleverage and they are buying back their own shares to prop up their share prices.
“Here’s an example of something that started off as balance sheet optimisation turning into straight out financial engineering. Companies that have been run fairly conservatively for a long time, in the past few years have begun to build up quite big debt levels. But the interest rate burden is barely visible because interest rates are so low.”
For Spence, central banks are increasingly in the game of “making their own myths”, while at the same time “defanging” the economic cycle.
He adds: “Exceptional monetary techniques to head off the deflationary threats were completely valid [during the peak of the financial crisis], but the continued application of this seven or eight years down the track is very hard to back as an argument.
“There is a growth deficiency in the world that is structural not cyclical, and everybody looks around the room to see who is going to do something and it falls to central banks to do the lifting.”
The problem is that few now trust policy makers to support us in starving off deflationary and recessionary forces ahead.
