"In the financial markets, the current economic cycle is still often viewed as if it is comparable to the far shorter cycles we have experienced since World War II. If that was indeed the case, the solution would be to implement fiscal and monetary stimuli now until lending to the private sector and thereby growth rise substantially. However, what is being overlooked is that the total debt/GDP ratio has risen so sharply over the past 75 years that the limit has probably been reached.
"That would mean that the governments and central banks can no longer create high growth; at best they can prevent growth from sliding fast. In addition, the drawbacks for central banks of opening the liquidity taps further are growing, while the effectiveness of the action is waning. Therefore, although we anticipate the Fed to embark on additional easing measures, we believe they will be disappointing in scope and effectiveness. For the ECB, maintaining the EMU and the euro is more important. To achieve that, interest ratesin Italy and Spain have to be rapidly reduced. Nevertheless, the measures the ECB recently announced will achieve no more than creating a degree of calm in the financial markets, unless Spain and Italy make substantial structural reforms to their economies. However, there is great resistance to those reforms."