'I would argue, and I think Sornette would agree, that the current policies are simply increasing the instability of the entire system, leading up to another major dislocation in the not-too-distant future.'<blockquote>'Without a fundamental shift in economic thought at the highest levels of central banking, there is little doubt that the response of any central bank during the next crisis – and there will always be a next crisis – will be more the same. Central banks will again apply the limited tools they have: low interest rates, quantitative easing, a variety of bailout mechanisms – in short, they will resort to the financial repression of savers in the name of the greater good.
Jim Bianco can argue, far more eloquently than your humble analyst, that savers should be rewarded, not punished; that financial repression should only be practiced in extremis; and that moral hazard should be respected. But the reality is that the people with their hands on the levers simply believe with all their hearts in a different theoretical economic framework and will not take a chance on being wrong. They will act just as they have in the past.
I would argue, and I think Sornette would agree, that the current policies are simply increasing the instability of the entire system, leading up to another major dislocation in the not-too-distant future. In much the same way that everyone loved rising house prices in the middle of the last decade, we all find contentment in a rising stock market now. For Bernanke and his kin, the markets simply confirm the correctness of their policies. "More cowbell!" is the economic order of the day.
As Sornette put it, "Each excess was felt to be 'solved' by measures that in fact fueled following excesses; each crash was fought by an accommodative monetary policy, sowing the seeds for new bubbles and future crashes."
Richard Fisher, Dallas Federal Reserve President, has been arguing forcefully that the Fed needs to begin tapering its quantitative easing. He is part of a growing chorus that is increasingly uncomfortable with the potential unintended consequences of massive accommodation and the financial repression of savers. Let us hope they are gaining a hearing.'
- John Mauldin,
We Can’t Take the Chance, August 10, 2013</blockquote>
Context<blockquote>
(1913 - 2013) Banking Reform - 'Rather than still hoping that real wealth will come out of money creation, an illusion..'(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'</blockquote>