Ah yes, all the hokus pokus is less magic and more smoke and mirrors. Some of us have said this for a long time. But in the wake of Japan falling back into recession, Europe’s continued depression, China’s slowing, and the ongoing troubles in the United States one gets the sense that on some level the grand poobahs of central banking are just tired. The act can only go on for so long. Sooner or later it has to end. Really the Bank of International Settlements, the central bank of central banks turned on the lights earlier this year.
There is distortion and malinvestment throughout the world economy. It’s everywhere. From Japan to Europe to China to South America to the USA and beyond the economy is misfiring thanks to the massive monetary experiments of the world’s central banks of the past 6 years. (And even before that.)
Thomas Woodhill argues that even though unemployment is “officially” at 5.9% this is highly deceiving.
An interesting quote above to be sure, and former Chairman Greenspan is absolutely correct. We are still expanding the Fed balance sheet. We are “tapering” but we are still pouring money into the global economic system. We don’t know what will happen exactly when the Fed goes neutral or starts to raise interest rates.
One thing is for sure. Pretty much none of it is finding its way to “Main Street.” Many QE dollars have however found their way into the bank accounts of those who were already rich. Read More
If all the “excess reserves” the Federal Reserve has created over the past 5 years were to move from the banks and into the broader economy there is the very real possibility of significant inflation, perhaps more significant than we have known in the modern era in the United States.
No one really knows outside of the Federal Reserve and probably the European Central Bank. But Peter Schiff has some thoughts on the sudden and vastly increased demand from Brussels. He thinks that the the Fed’s supposed reduction in bond buying (QE) is actually being replaced by an increase in European buying, keeping yields down and so too concern.
Malinvestment is a very important concept to understand. It simply means the allocation of capital in ways which appear to be (and may be) rational in a period of artificially cheap credit, but in ways which in the end prove to be inefficient once the market corrects for artificially low rates. (Created by a central bank.) Malinvestment is a symptom and a driver of economic bubbles.
You know, that is a really good question.