![]() central bank should get it over with in a single move and see what happens. So if monetary policy normalization is the goal, maybe the U.S. ![]() That, after all, was the average from 2004 to 2008, back when the economy was deemed to be normal. Instead of leaving borrowing costs on hold at 0.25 percent when it met Thursday, suppose the Federal Reserve had instead raised its key interest rate to 3.25 percent. If Einstein Ran the Fed, Rates Would RiseĪbout a year ago, Gilbert wrote If Einstein Ran the Fed, Rates Would Rise Neil Grossman, director of Florida-based bank C1 Financial and former chief investment officer at TKNG Capital Partners, likens the need to abandon the current economic orthodoxy with the impact of quantum physics on science in the last century. That’s the kind of empirical evidence that should produce a reconsideration of what Rothschild Investment Trust Chairman Jacob Rothschild this week called “ the greatest experiment in monetary policy in the history of the world.” Record low borrowing costs haven’t led to a surge in investment and spending that would lead to higher prices. ![]() Years of pumping trillions of dollars, euros, yen and pounds into the economy by buying government debt and other securities hasn’t produced the rebound in inflation that economics textbooks predicted. The mismatch between economic theory and the real-world outcome of zero interest rates poses a direct challenge to the current orthodoxy that puts a 2 percent inflation target at the heart of monetary policy in most of the developed world. Quantitative easing’s failure to quash the threat of deflation is finance’s equivalent of the bump in the data that alerted physicists to the possibility of a new boson. Today’s step shows our unwavering determination to end deflation.”īloomberg columnist Mark Gilbert offers this Physics Lesson for Central Bankers. “Now is a critical moment for Japan to emerge from deflation. “We decided to expand the quantitative and qualitative easing to ensure the early achievement of our price target,” Bank of Japan Governor Kuroda told a news conference, reaffirming the BOJ’s goal of pushing consumer price inflation to 2 percent next year. industrial production by less than 1%, and lowered the unemployment rate by just over one-tenth of 1% beyond what would have been expected from conventional monetary policy (as defined by the Taylor Rule). Specifically, the trajectory of the economy in recent years has followed a largely mean-reverting course that one could have anticipated simply on the basis of lagged economic data, and there is no economically meaningful difference in the projected trajectories of GDP, industrial production, and employment using purely non-monetary variables, compared with projections that include measures of recent extraordinary monetary policy.Įven allowing for a negative “shadow” Federal Funds rate, as Wu and Xia have done, results in the conclusion that extraordinary monetary policy boosted U.S. I can’t emphasize strongly enough that there is no economic evidence that activist monetary intervention has materially improved economic performance in recent years. But the larger question, beyond a sociopathic desire to control others in service of one’s own intellectual dogma, is why anyone would advocate such policies. I imagine that Ben Bernanke, Mario Draghi and Haruhiko Kuroda all stay awake at night imagining ways to force negative rates on savers. No Evidence QE Increased Industrial Output or Reduced Unemployment Let’s continue with the bank policy discussion. Hussman also discussed central bank policy and whether or not there was any evidence it works. He believes stocks will not be flat for 10 years, rather there will be a drawdown of 40% or more at some point. Hussman proposes that stocks and bonds are so ridiculously priced that expected returns in every time frame shorter than 10 years is likely to be negative.
0 Comments
Leave a Reply. |