I haven’t had a rant for a while about the parlous state of the world economy or central banking monetary policy and quantitative easing (“QE”) etc., etc.,
This is because of a thought I keep having regarding a conversation with my bankophile twin a year or so ago.
“It doesn’t matter if they keep printing money” he said.
And now I think that I’m coming slowly around to his way of thinking.
Yesterday the Congressional Budget Office of the USA (“CBO”) estimated that the US budget deficit is set to rise to £960bn this year.
Now, this would cause my grandmother to wring her hands and say, “That’s going to cost a lot to finance!”.
But it won’t!
Because US interest rates are coming down!
And, if the US follows Japan and Germany and enters the crazy (or is it!?) world of negative interest rates, the Federal reserve will end up PAYING the US Government to borrow the money the Fed prints to loan to it, rather than the other way around.
And, if all the major central banks (Fed, ECB, Bank of China, Bank of Japan, Bundesbank, Bank of England etc) are OK with negative interest rates and play ball nicely together …. QE doesn’t matter.
And as a bonus, there will be NO MORE HARD DEFAULTS eg., Lehman Bros, because central banks will not let this happen.
It is easier to bail offenders out rather than rock the global economic boat.
THE ONLY DOWNSIDE to this is that it has and will continue to increase the gulf between the rich and the middle/working classes.
This will lead to social UNREST
And you can’t print your way out of that.
EXCEPT THAT APPARENTLY YOU CAN….. It’s called helicopter money!
Yeay. A new form of socialism!?