It has been obvious for several years that the primary problems plaguing most developed countries’ economies are too much government and too much debt. Normally, we would skip right over a Wall Street Journal story entitled “Slow Global Growth Vexes Policy Makers,” 4/20/15, but it looked like it might be a source of quotes to lampoon. We were not disappointed. From the article:
“It’s premature to talk about vibrant growth,” said European Central Bank President Mario Draghi.
No kidding! Europe has had dismal to nonexistent growth for years. Before anyone can talk about “vibrant growth,” Europe would have to have anemic growth, substandard growth, plodding growth, and then respectable growth.
“The world economy is not out of the woods,” said Augustin Carstens, Mexico’s central bank governor and chairman of the IMF’s policy-setting committee.
What tipped him off? Could it be the world debt load at $200 trillion, almost three times the world’s GDP?
“It’s a recurring theme,” said Mexico’s finance minister, Luis Videgaray. “There’s an overreliance in the world on monetary policy and perhaps not enough effort on the structural front.”
There is no evidence at all that central banks buying their governments’ debt and keeping interest rates low are required for economic growth, so any reliance on monetary policy would be overreliance. There is abundant evidence that governments can and do, in a variety of ways, retard economic growth. The word “perhaps” in the last part of the quote was unnecessary, but one of the first lessons taught at bureaucrat school is never make an unhedged statement.
“The political processes required to address these issues are not simple,” said Mr. Vidgaray. “That’s why monetary policy is bearing most of the burden.”
Actually the political processes required to address issues of government debt and spending, and the welfare state, are quite simple: somebody has to say no. Monetary policy is bearing most of the burden because nobody has the balls to do so.
“Having said that, we’re certainly entering into uncharted waters if the crisis were to precipitate,” Mr. Draghi said on Saturday.
Yes, if interest rates are already zero or below and central banks’ balance sheets are groaning under the weight of prior debt and asset monetization efforts, what happens if another crisis “were to precipitate”? Oh well, Mr. Draghi, just keep monetizing, suppressing interest rates into negative territory, and expanding the ECB balance sheet, and keep your fingers crossed.
