The central bankers are making their last stand to stop their sworn enemy, deflation, with copious amounts of debt. It can’t work. From Tom Luongo at tomluongo.me:
We are at a critical moment in the history of politics and markets. Everyday the U.S. government stares into the fiscal and monetary abyss and chucks trillions in hoping that will be enough to finally fill it.
We stand by hoping that it will work to reflate markets collapsing from a catastrophic mispricing of assets. At least some of us do. I don’t.
I hope it fails and it’s because those inflated prices fuel the very global political order that is anathema to human advancement.
President Trump is finally happy with his FOMC chair, Jerome Powell, after he opened the door to unlimited quantitative easing, nearly unlimited liquidity injections via the repo markets, and taking interest rates to the zero-bound.
It’s clear that the Keynesians at the Fed and the U.S. Treasury Dept. have no answers to the problems in front of them. They are simply doing what they always do when a crisis hits. Print money and hope someone still believes the new money is worth buying.
The sudden supply and demand side shock to the global economy thanks to the COVID-19 coronavirus is outside of their frame of reference.
To best understand what we’re dealing with here you have to understand how these people think. Modern economic theory, based on John Maynard Keynes’ General Theory of 1936, imagines the economy as a bathtub.
And that bathtub is constantly draining as credit is destroyed. Money flowing out of the economy has to be replaced with a constant stream of new money, in the form of new credit, or the bathtub drains. The velocity of new money has to keep up with old money or the system drains.