A Message to Central Banks: Let the Economy Run Its Course!

OK, so you know that I don’t think governments should go too far to counter the natural cycles of the economy.

Those cycles have their own innate logic as they meander toward creating greater innovations, income and wealth. Markets and economies need the polar opposite of boom and bust, inflation and deflation, innovation and creative destruction.

When governments go too far trying to counter those realities, they end up doing more harm than good. They can’t accept that growth isn’t possible without pain, so they do everything in their power to keep the hurt at bay. Only, doing that simply prolongs the inevitable… and always makes the outcome worse than if they’d just let the free market run its course.

And you know that I think government and central banks the world over have gone too far in their efforts to fight the natural winter season our economy is embroiled in until 2023. They’ve created more than $10 trillion — $3.5 trillion in the U.S. alone — out of thin air, all in the vain and delusional attempt to keep the tide at bay and the bubble going!

That’s just crazy.

Unfortunately, it gets crazier still… and this next part really makes me mad…

All of that money “created” has gone straight to financial institutions, where it’s been used to speculate and create an even greater bubble in debt and financial assets, and that only works to the advantage of the ultra-rich! I’m talking about the top 10% to 0.1%-plus here.

And we have special interest groups and lobbying in the areas of health care, military  financial and education (in that order) to thank for that. They drive our political system. “Save the big banks, save AIG, save GM,” they chant.

But why not save the average household that has been suffering from one financial blow after another since 2000. Real wages have declined by more than 10% since then. Many are still living in homes that have less value than what they owe on the mortgage. Their standard of living hasn’t improved one iota, even with all the stimulus central banks have pumped into the system.

I think quantitative easing was the biggest mistake central banks could have made. Not only has it created yet another bubble that will crush millions more people when it bursts ahead, but such programs have done nothing to help the average household and even less to solve the underlying problems.

What those in charge should have done is actively work to restructure the massive debt build-up in the private sector, which outweighed government debt by three times at the crescendo of the bubble in 2008.

They could have done this through a collective Chapter 11 debt restructure, requiring banks to write down loans to fair value, while giving liquidity to the banks to avert a total meltdown. That $3.5 trillion could have gone into orchestrating as much as a $22 trillion write down in the 2000 U.S. bubble debt!

That would have helped the average citizen and the small or medium-sized businesses as much of their debt would have been written down.

Or… they could have just sent a check to every household (proportionate to the number of people in the house, of course). With that $3.5 trillion newly “printed” money, each household could have received about $30,000 each.

That would have stimulated demand where it could be of most value to the economy and have tilted the gains to the middle class, not the 1%.

But no! The foxes were brought into fix the henhouse and now we face possibly the biggest economic and market crisis in the last 90 years!

And with every day that passes, we hear new warnings and see new triggers that could be the one to bring the whole damn thing down.

There’s falling inflation and commodity prices, despite unprecedented stimulus.

China is slowing, even after the greatest over-stimulated government-driven bubble in history.

Southern Europe and Germany are being lead downhill by declining demographic trends.

Terror is growing around the globe, as expected when we consider the current Geopolitical cycle.

And falling oil prices have and will continue to burst the fracking bubble that developed over the last six years of QE.

All it will take is just one of those things to break the camel’s back… to be the last grain of sand that starts the avalanche.

Sadly, there’s nothing we can do about the missed opportunities. There’s nothing we can do to prevent central banks and governments from continuing to make foolish and damaging decisions.

What we can do is be prepared. As those citizens who didn’t see the benefits of all of the stimulus money, we can now put ourselves in a position where we can improve our financial situation… or, at the very least, prevent it from getting worse.

All it takes is the right research… powerful, reality-based insights, and a plan of action, all of which we aim to provide you daily, weekly and monthly.

Get ready.

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Harry

Follow me on Twitter @harrydentjr

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Categories: Central Banks

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.