The futility of central bank policy, by Alasdair Macleod

Central banks are between a rock and a hard place like they haven’t been since the 1970s. From Alasdair Macleod at

t is only now becoming clear to the investing public that the purchasing power of their currencies is declining at an accelerating rate. There is no doubt that yesterday’s announcement that the US CPI rose by 6.2%, compared with the longstanding 2% target, came as a wake-up call to markets.

Along with the other major central banks, the Fed’s reaction is likely to be to double down on interest rate suppression to keep bond yields low and stock valuations intact. The alternative will lead to a major financial, economic and currency shock sooner rather than later.

This article introduces the reader to some of the basic fallacies behind state currencies. It explains the misconceptions policy planners have over interest rates, and how central banks have become contracyclical lenders, replacing commercial banking’s credit creation for non-financial activities.

In effect, narrow money is being used by the major central banks in a vain attempt to shore up government finances and economic activity. The consequences for currency debasement are likely to be more immediate and profound than cyclical bank credit expansion.


It is becoming clear that there has been an unofficial agreement between the US Fed, Bank of England, the ECB and probably the Bank of Japan not to raise interest rates. It is confirmed by remarkably similar statements from the former three in recent days. When, as the cliché has it, they are all singing off the same hymn sheet, those of us not party to agreements between our monetary policy planners are right to suspect they are doubling down on a market rigging exercise encompassing all financial markets.

That these policy planners are clueless about money and economics escapes nearly everyone affected. It is assumed the so-called experts know what they are doing. But for nearly a century, universities have promoted statist beliefs on their economics courses to the exclusion of reasoned theory leading to the current situation. In modern times it started with Georg Knapp’s Chartalist movement in Germany before the First World War. And it really took off with Keynes’s General Theory published in 1936. The essence of it has been state attempts to dehumanise economics; to turn economic actors, that is you and me, into predictable components in a mathematical economy.

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