Tuesday, March 22, 2016

NIRP: Precursor of Economic Doom?

Central banks continue to labor under the unrealistic fiction economic activity can be managed by adjusting the supply of money. Cheap credit is supposed to stimulate a robust economy and the central banks have used quantitative easing to create trillions of digital dollars. The American Fed’s balance sheet ballooned to ~ $4.5 trillion. The ECB is headed toward more than 3.5 trillion Euros. Cheap credit was supposed to stimulate a robust economy. But did all this credit do any good?

Wealthy investors and investment companies used cheap dollars to bid up the value of stocks and bonds. Many companies borrowed cheap money to buy back their own stock. Business activity, however, has remained flaccid. GDP growth is sluggish. The fracking boom has come and gone (at least for a while), leaving a pile of questionable debt. Cheap credit has created a financial bubble. One prick and --- poof!

Perhaps national bankers are lemmings in disguise. It is apparently unpopular among the elitists to give any serious consideration to the concept that what is wrong with our economic system is STRUCTURAL. That would require independent thinking and (gasp!) a realignment of banking activity with the freedom of a capitalist economic system. No. No. No. John Maynard Keynes is right even if he is wrong. We must absolutely ignore any evidence that our socialist financial ideology is leading us down the road to economic disaster.

Do anything to remain an insider elitist.

Having failed to adequately “stimulate” the economies of several nations with low interest rate policies, those in control of national banks are toying with the idea of Negative Interest Rate Policy (NIRP). That is government speak for stealing money from our savings and checking accounts. Stimulate the economy by forcing increased consumption. NIRP, it is believed, will force consumers to take money out of their bank accounts and spend it. Ignore the fact that consumers and nations already have far too much debt.   

Thus another banking crisis is inevitable. Negative Interest Rate Policy will fail because a fully implemented NIRP will decimate pension plan and insurance retirement account values. Government and private industry workers will demand redress. The only recourse for many organizations will be bankruptcy because they will be unable to fund the losses. What the hell are central bankers thinking?

What is the solution for failed monetary policy? What happens when there is another massive bank failure? Repeat the ignorance. Plunder consumer bank accounts to save the banks. It’s called “bail-in”. Steal from the working class to save the wealth of the elitists. Smart investors will get the hell out of the banks. If they can. If the banks will let them have their money in CASH.

It should be clear to any rational person the Keynesian belief one can control economic activity by merely controlling the flow of money is a ridiculous failure. Unfortunately, the ignorance of ideology compels those who control our national banks to compound obvious failure with even more senseless failure. Socialist ideology, the darling theology of insider elitist intellectuals, will prevent the adoption of any realistic measures to solve the structural problems that curse the vitality of our economy. 

Do anything to remain an insider elitist.

Central banks are losing control of the money supply. Despite brave words to the contrary, they cannot control inflation because they are beholden to the politics of their respective host nations, and current political reality favors currency devaluation. That’s inflation spelled with a “d”. Combine the wild west economic impact of competitive devaluation with trillions of dollars hidden outside the banking system and we have the ingredients of a financial Armageddon.

We need a paradigm change. Our respective national political leaders and central bankers need to rethink their pet answer to the age old question: What really drives economic growth? Is it possible entrepreneurial activity creates a demand for investment? Should we sweep away several hundred thousand pages of restrictive rules and regulations and replace them with a sane economic policy? Are we ready to admit the freedom of independent action is far more likely to create economic growth than socialist planning?

Probably not.

Change won’t be easy and is - perhaps - unlikely. Failure is a repetitive symptom until revolutionary change upsets the status quo.

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