'Between the middle of 1922 and April 1928, without need, without justification, lightheartedly, irresponsibly, we expanded bank credit by more than twice as much, and in the years which followed we paid a terrible price for this.'
- Benjamin M. Anderson,
Economics and the Public Welfare (1949) p. 146
'Mr White said QE and easy money policies by the US Federal Reserve and its peers have had the effect of bringing spending forward from the future in what is known as "inter-temporal smoothing". It becomes a toxic addiction over time and ultimately loses traction. In the end, the future catches up with you. "By definition, this means you cannot spend the money tomorrow," he said.
..
In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style "Fisherite" debt-deflation.'''The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.
"The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up," said William White, the Swiss-based chairman of the OECD's review committee and former chief economist of the Bank for International Settlements (BIS).
"Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem, too."
"Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief," he said.
"It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something," he told The Telegraph on the eve of the World Economic Forum in Davos.
..
Mr White said QE and easy money policies by the US Federal Reserve and its peers have had the effect of bringing spending forward from the future in what is known as "inter-temporal smoothing". It becomes a toxic addiction over time and ultimately loses traction. In the end, the future catches up with you. "By definition, this means you cannot spend the money tomorrow," he said.
A reflex of "asymmetry" began when the Fed injected too much stimulus to prevent a purge after the 1987 crash. The authorities have since allowed each boom to run its course - thinking they could safely clean up later - while responding to each shock with alacrity. The BIS critique is that this has led to a perpetual easing bias, with interest rates falling ever further below their "Wicksellian natural rate" with each credit cycle.
"It was always dangerous to rely on central banks to sort out a solvency problem ... It is a recipe for disorder, and now we are hitting the limit."
The error was compounded in the 1990s when China and eastern Europe suddenly joined the global economy, flooding the world with cheap exports in a "positive supply shock". Falling prices of manufactured goods masked the rampant asset inflation that was building up. "Policy makers were seduced into inaction by a set of comforting beliefs, all of which we now see were false. They believed that if inflation was under control, all was well," he said.
In retrospect, central banks should have let the benign deflation of this (temporary) phase of globalisation run its course. By stoking debt bubbles, they have instead incubated what may prove to be a more malign variant, a classic 1930s-style "Fisherite" debt-deflation.'
- Ambrose Evans-Pritchard,
World faces wave of epic debt defaults, fears central bank veteran, January 19, 2016
context (Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'Global Banking Economist Warned of Coming Crisis - By Beat Balzli and Michaela SchiesslHitler’s Specter Inspires Bill White to Battle With Greenspan - By Alan Katz(2013) - 'This looks like to me like 2007 all over again, but even worse.' - William White, the BIS’s former chief economistThe Dangerous Delusion of Price Stability - William White'..[the] industry receiv[ing] the most subsidies .. is the financial sector via money for nothing from central banks..' - '..BIS dissidents..''..global central bankers .. history's most reckless monetary mismanagement .. Harsh geopolitical fallout is unavoidable..'Blast from the Past: 2006 - 2008'Peter Navarro warned Wall Street bankers and hedge-fund managers to back down' - 'Hedge Funds Are on Pace for the Worst Annual Year Since Lehman Brothers.''October’s market decline was a rather mild warning shot.'Gold - '..the central planning experiment of the past four decades .. a catastrophic failure .. statist .. up in arms.''..Mr. Greenspan fails to grasp the essence of this historic Credit Bubble..'