Tag Archives: The reservoir effect

Statistics, lies and the reservoir effect, by Alasdair Macleod

This article is a little denser than usual, but like everything Alasdair Macleod writes, is well worth plowing through. From Macleod at goldmoney.com:

This article debunks the misconception that GDP represents economic health. It explains how monetary flows have led to markets in financial assets inflating while non-financials in the GDP bucket are in deep distress. And why, at a time of rapid monetary expansion, all attempts to quantify the effects of monetary policy on the real economy become even more meaningless.

Financial markets are acting like an inflation reservoir. And when the dam bursts bond yields will rise substantially, undermining values of other financial assets. The non-financial GDP economy will then face the full force of monetary depreciation, with calamitous consequences for ordinary people: the unemployed (of which there will be many), the low-paid and retirees living on meagre pensions and savings.

Macroeconomics have led state planners in all high-welfare economies headlong into policies of monetary and economic destruction from which there is no politically acceptable means of escape. 

Introduction

Only those with a lack of perception are unaware that their nation’s economy is in deep trouble. It is far worse than just a pandemic-induced disruption in our lives which in a little time will return to normal. Lest we forget, liquidity strains had already appeared in the US repo market and forced the Fed to reverse its policy of reducing its balance sheet before the coronavirus even existed. And before that, the trade tariff war between the US and China had led to international trade grinding towards a halt.

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