Credit Bubble Bulletin

Credit Bubble Bulletin 2018-10-30T12:00:02+00:00

Presented by Doug Noland

Weekly Commentary

December 14, 2018: The Perils of Inflationism

December 13 – Financial Times (Chris Giles and Claire Jones): “When the European Central Bank switches off its money-printing press at the turn of this year and stops buying fresh assets, it will mark the end of a decade-long global experiment in how to stave off economic meltdowns. Quantitative easing, the policy that aims to boost spending and inflation by creating electronic money and pumping it into the economy by buying assets such as government bonds, is on the verge of becoming quantitative tightening. With the Federal Reserve slowly reducing its stocks of Treasuries, central banks are no longer in the buying business. Globally, only the Bank of Japan is left as a leading central bank that has not formally called time on expanding its stock of asset purchases. Arguments over how, or even if, the trillions spent by policymakers helped the global economy recover will rage for years to come. But as central banks step back, the initial view is that the purchases worked — whether through encouraging investors to hold more risky assets, easing constraints on borrowing, providing finance so governments could run larger budget deficits or just showing that central banks still had an answer to weak demand and low inflation.”

At this point, the prevailing view holds that QE “worked.” Moreover, central banks are seen ready and willing to call upon “money printing” operations as need. The great virtue of this policy course, many believe, is that there is essentially no limit to the scope and duration of “QE infinity.” The FT quoted Mario Draghi: “[QE] is permanent and may be usable in contingencies that the governing council will assess in its independence.” Melvyn Krauss, from the Hoover Institution, captured conventional thinking: “No one willingly walks into a room from which there is no exit. Because QE proved temporary, because it worked and because it has ended, it is likely to be used again.”

But what if faith in QE is woefully misguided? What if markets and policymakers alike come to appreciate that QE only masked underlying fragilities and delayed desperately needed structural reform? Worse yet, what if the reality is that QE exacerbated latent financial fragility – through more leverage, speculation, misperceptions and market distortions. And what about social and political instability? Surely, there’s growing recognition that a decade of monetary stimulus and resulting Bubbles have further redistributed wealth and worsened inequality. (more…)

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Doug Noland Interview: “In The Next Crisis The Fed’s Balance Sheet Will Hit $10 Trillion”

To read the entire article from Zero Hedge with Doug Noland, be sure to click here. 

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