Monetary Policy

Real wages in Japan have been declining thanks to decades of expansionary monetary and fiscal policies. Now "Japanization" increasingly looks like a fate that awaits Europe.

As the nation-states take the brunt of their economic collapses on the chin, they will begin to realise that the EU superstate is little more than an obstructive and costly irrelevance.

By announcing that it is willing to throw up to $1.5 trillion in electronically created money in order to give three-month loans to those institutions that bought Treasury debt earlier, the Fed is bailing out not only the holders of Treasury debt, but also the Treasury itself.

Modern monetary theory (MMT) conveniently facilitates dangerous policies and ideas that seemed unrealistic, like universal basic income and “helicopter money,” and that have been particularly propagated by government-sponsored economists for the past few years. 

Although shocks can disrupt the pace of economic activity, they have nothing to do with the phenomenon of recurrent boom-bust cycles. The cycle requires something more. A central bank, for instance.

A relatively new challenge to the Austrian framework comes from the “market monetarists” and their endorsement of a central bank policy of “level targeting” of nominal gross domestic product.

What we observe today is a desperate fight against deflation. We know that this situation is unsustainable, but we do not know to which side the balloon will fall.

There are echoes of the 1973 oil shock in the current virus scare and resulting economic seize-up. Central banks are likely to respond similarly: with "stimulus" and inflation.

Today's rate cut of 50 basis points is the largest rate cut since December 2008, in the midst of the aftermath of the financial crisis. But Chairman Powell insists the US economy is "strong."

By being so dovish for so long, the Fed has greatly limited what it can do in case of recession without resorting to untried and radical solutions like negative rates.