Printing self-illusions a risky game (4)

While these monetary policies create a perception of stability, they also provide a pretext to defer structural reforms, which, in turn, creates a moral hazard. In Washington, this status quo has resulted in a prolonged fiscal cliff. In Brussels, muddling through has postponed change (and yet the ECB's liquidity injections have boosted the value of the euro to the stunning $1.36). In Tokyo, the standoff has discredited a generation of political leaders.

The "unexpected" shrinking of the US economy in the end of 2012 was not unexpected at all, but a foretaste of what's ahead with fiscal adjustment in the developed world. What's worse, any perception of stability could prove elusive if the US fiscal cliff fails to lead to a credible, bipartisan medium-term adjustment plan, if eurozone is swept by new turmoil, or if markets lose faith in Japan's huge debt.

Theoretically, bloated central bank balance sheets in the developed world are a means to an end. In practice, they have become a part of the problem.

Printing self-illusions is a dangerous way to play with fire.