Ultimate Failure of Monetary Policies
Even SocGen economists concluded that “Clearly, markets have lost faith in the ability of unorthodox monetary policies to kick start the economy over time.”
Maybe it’s time for economists around the world to realize that monetary policies are designed to tackle monetary issues, not “kick start” anything. In other words, money should be printed only when market problems stem from the lack of currency in circulation.
Firing up the printing press in any other circumstances doesn’t produce growth – it simply shifts the numbers around. As I said, GDP growth shows only how much better companies in the economy are at producing value. Money just represents this value – it doesn’t create it.
After six years of near zero interest rates, cheap credit and rallying stock markets (which absorbed a lot of the free flowing cash, pushing company market caps to new heights) it’s time to realize that the slowdown is really a result of degeneration of the environment in which businesses have to operate – what stifled their ability to develop and improve. No amount of money you are going to print will change that.
“When a man looks in the abyss, there’s nothing staring back at him… At that moment, man finds his character. And that is what keeps him out of the abyss.”
The time has come for the world’s leaders – and the societies they lead – to face the reality. They are looking in the abyss.
Since 2008 they’ve doing all the wrong things and if they want to stay out of the abyss then today they have to do the right thing, regardless of how difficult it may be. There is a high price to pay, but the alternative is an even longer stagnation, beyond anything we have experienced in the modern history.
Markets should be allowed to finally crash and clean themselves of inefficient entities. Companies will go bust and people will lose jobs – yes, it will hurt and there will be unrest. But if we don’t allow it, the later collapse will be even more painful and not only companies but entire countries – like Greece – will go bankrupt.
If it had not been prevented back in 2008, the pain would be over by now. Instead, politicians chose the path of economic futility, borrowing money to prop up the status quo. And in doing so they keep supporting businesses – making up entire economies – which have proved themselves incapable of generating growth.
The situation today is already worse than it was six years ago – and there are no more tools we can use. Monetary policies are dead – trillions of dollars and euros fill financial systems to the brim, with interest rates near zero – and yet economic situation is hardly any better.
US administration may boast about lower unemployment rates – but that’s simply because unemployed left the labor force, not because they found jobs. Employment-to-population ratio is still at 2009 levels. There hasn’t been any recorded growth, other than the record-breaking stock markets, buoyant on the ever increasing flow of free QE money.
Instead of helping the economy, what central banks managed to achieve is fill the pockets of stock investors.
Economic reality in 2015 is that printing money hasn’t helped, most developed countries are hardly above 2008 GDP levels – while everybody, including China, is carrying a lot bigger debt burden. When this crisis really strikes, there will be no more bailouts for anyone – just a string of defaults, both on a corporate and a state level. The abyss.