Monetary Policy Has Failed… Here’s What’s Coming Next

US budget proposal

Stocks got a little tailwind push yesterday…with the wind coming from post-debate commentary.

It looked to many pundits that Hillary had prevailed. She belled the cat.

This was good news to the stock market. Hillary is ‘business as usual’.

The Dow rose 133 points.

Grand opening

We’re in Ireland for the grand opening of our new international headquarters.

Like so many other things in life, this project didn’t take us where we wanted to go, but it probably took us where we ought to be.

Operating from Ireland, we had hoped to get tax advantages.

Ireland has a low corporate tax rate — just 12.5%. But as it turned out, we are unable to shelter income here…because we have so little income to shelter.

Our new headquarters is mostly a cost centre, not a profit centre. We support our operations all over the world — with telephone and computer services, for example.

Still, Ireland is an agreeable place with friendly people. Almost everyone is ready to have a pint with you.

And you don’t have to worry about air conditioning or watering the flowers.

Epic fail

Meanwhile, we were shocked to see in the Financial Times — yes, the ‘pink paper’, no less! — a sensible article on current central bank policies.

Our heart raced. Our pulse sped up. A light sweat gathered on our forehead.

‘What is going on?’ we wondered.

The Financial Times is the mouthpiece of the international Deep State. It is solidly behind Hillary…NATO…the EU…QE…ZIRP…NIRP…the phony credit dollar…and just about every other cockamamie perversion of civilised life.

And yet…there it was…in Monday’s edition. William White, head of the OECD’s economic development review committee:

The monetary stimulus provided repeatedly over the past eight years has failed […] Debt levels have risen […] Consumers have had to save more, not less, to ensure adequate income in retirement.

At the same time, easy money threatens two sets of undesirable side effects. First, current policies foster financial instability… and many asset prices bid up to dangerously high levels. Second, current policies threaten future growth. Resources misallocated before the crisis have been locked in through zombie banks supporting zombie companies.

On the demand side, accumulating debt creates headwinds, leading to more monetary expansion and more debt […] On the supply side, misallocations slow growth, which again leads to monetary easing, more misallocation and still less growth.

Regular Diary readers will recognise this analysis. It is more or less what we have been discussing in these pages for the last eight years (minus our pointing the finger of blame at the post-1971 dollar).

That this critique has moved from the back alleys of the Diary to the main street of the Financial Times is an important sign.

It is a sign of desperation.

The Establishment is in need of a new program. New magic. New hocus pocus that will keep this swindle working.

New hustle

Not that the Establishment is ready to abandon its activist meddling or give up its racket.

It depends on the system now in place to move trillions of dollars of other people’s money in its direction.

But monetary policy is clearly not doing the trick. And the insiders are now coming to terms with it. They need a new hustle.

What?

Fiscal stimulus!

They want the government to spend more money. Where will it get more money?

It will borrow it, of course.

This is what Larry Summers has been calling for. It is what Paul Krugman wants.

Our friend Richard Duncan at Macro Watch believes it is essential to avoid depression.

The Financial Times has been in favour of bigger government deficits (aka ‘fiscal stimulus’) since the crisis began.

But never before in the mainstream media have we seen it backed by a realistic understanding of how the Fed’s policies have failed.

Regards,

Bill Bonner,
For Markets and Money, Australia

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Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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