David Stockman : Central Banking Is Dead In The Water



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The Cult Of Central Banking Is Dead In The Water

New York City, New York
May 1, 2016

The Fed has been sitting on the funds rate like some monetary mother hen since December 2008. Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months.

There has never been a time in financial history when anything close to this happened, including the 1930s. Nor was interest free money for eight years ever even imagined in the entire history of monetary thought.

So where’s the fire? What monumental emergency justifies this resort to radical monetary intrusion and repression?

Alas, there is none. And that’s as in nichts, nada, nope, nothing!

There is a structural growth problem, of course. But it has absolutely nothing to do with monetary policy; and it can’t be fixed with cheap money and more debt, anyway.

By contrast, there is no inflation deficiency—–even by the Fed’s preferred measure. Indeed, the very idea of a central bank pumping furiously to generate more inflation comes straight from crank economics central.

The following two graphs dramatize the cargo cult essence of today’s Keynesian approach to central banking. Since the year 2000 when monetary repression began in earnest, the balance sheet of the Fed has risen by 800%and the amount of labor hours used in the US economy has increased by 2%.

At a ratio of 400:1 you can’t even try to argue the counterfactual. There is no amount of money printing that could have ameliorated the essentially “no growth” economy symbolized by flat-lining labor hours… Read more »