MSN: It’s like a design competition. Hardly anyone thinks central banks can fix a stalling world economy with their current tools. So some of the biggest names in finance are trying to invent new ones.
The proposals so far — including recent entries by billionaire Ray Dalio and monetary policy maven Stanley Fischer — have one thing in common: They foresee the once all-powerful central bankers taking a more junior role and collaborating with governments.
That type of stimulus used to be taboo, in part because it risks eroding the independence from politics that monetary policy makers prize — and President Donald Trump is already threatening. History is littered with cautionary tales in which blurring the lines between central bank and Treasury coffers led to runaway inflation.
But right now, deflation is the big threat. An emerging consensus says the next downturn may need to be fought with direct and permanent injections of cash –- often called “helicopter money’’ -– and that central banks can’t deliver it alone. more …
Opinion: For a real life example of deflation think Japan. After almost 2 decades of grinding deflation caused by an asset-inflated bubble that burst in the late 1990s, the nation’s debt is now near 250% of GDP. By Contrast US debt has crossed 100% of GDP.
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%. Inflation reduces the value of currency over time, but deflation increases it, allowing more goods and services to be bought than before with the same amount of currency.
Problem: As prices fall, production slows and inventories are liquidated. Demand drops and unemployment increases and recessions often result. A vicious cycle.
Quantitative Easing (QE) began in 2009 as a plan to avoid deflation and cause moderate inflation by increasing the nations money supply. It provided governments the ability to spend into oblivion by printing money and creating debt. The plan was to unwind the trillions in debt by 2015-16. It did not happen. As asset values rose the rich grew much richer while the middle class stagnated.
The next downturn will be worse than the last simply because debt levels have reached nosebleed levels. What will the central banks do to stimulate the economy when interest rates are at zero? Print, baby, print only this time deposit the stimulus direct to the citizens bypassing the banks.
There is only one long-range outcome for this insanity and it is found in our Bibles in Revelation 6:56 hyperinflation. The good news is that when that prophecy is fulfilled, those who had accepted the pardon for sin that the cross of Jesus Christ provides, will be kept out of the chaos.
“Because you have kept My command to persevere, I also will keep you from the hour of trial which shall come upon the whole world, to test those who dwell on the earth.” Revelation 3:10
Thanks to Robert for sending us this article.