On Friday, Janet
Yellen hinted at the possibility of unprecedented monetary stimulus. What form this might take remains unclear. Yet only a few options exist - mainly,
negative interest rates and helicopter money.
Japan has already instituted NIRP (negative-interest-rate policy), as
have many European countries. Japan has
hinted at the possibility of helicopter money being necessary, seeing the
ineffectiveness of NIRP.
A healthy economy needs interest rates. As
Peter Schiff has noted in his writings, savings are the bedrock of
capitalism. People use savings and
interest income to invest. Without a
positive interest rate, the whole economy stalls out. That’s what has been happening, as evidenced
by the plunging velocity of money, something I have written about previously.
How anyone believes that NIRP can be a good thing lies
beyond the scope of reason. The only way
it can be considered positive involves looking at the obscene amounts of debt
in the system. Interest rates must go
ever lower in order to sustain more and more debt. Imagine you have a credit card and keep
charging more and more. That’s fine, so
long as your interest rate keeps on plunging, you will never have to make much
of a payment.
Of course, everyone knows that’s just not how it works. So it’s silly to think this charade can go on
forever. At some point things must reach
a breaking point. Years of stagnation
seem destined to precede that breaking point, as we have seen in Japan.
The Fed’s balance sheet has ballooned to over $4 Trillion
USD. The next dose of QE may be in
excess of $2 Trillion. Like a drug
addict, more and more stimulus is needed to prop up the economy, until finally….overdose.
What will be the ultimate outcome of this insane monetary
experiment? What are your thoughts? Feel free to leave a comment below.
No comments:
Post a Comment