Well, I think there’s one thing I think we can infer from this post. David Stockman doesn’t think much of Fed policy:
This is getting just plain nuts. Here is what Janet Yellen said today about the possibility of negative interest rates:
In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.“
The operative words here are “European countries†and “add accommodationâ€. Yet even a brief reflection on those items demonstrates that Janet is a delusional Simpleton. To adapt Jim Kunstler’s felicitous phrase about Senator Rubio’s 4-Peat incantation during the last GOP debate, our financial system is being led by a monetary android with a broken flash drive.
There are any number of interesting things in the post. Take this graph of European private credit expansion, for example:
which I think explains quite a bit.
His post brings up a number of interesting questions, ones that have bearing on our present situation. Do economies have maximum carrying capacities for debt? What’s “an economy”? The empirical evidence for that first question appears to be “no” but excessive debt does carry consequences. And IMO the only really meaningful answer to the second question is “the whole world” which in turn implies that there is now so much that the Fed can’t control, e.g. China, that its actions just aren’t as important as they used to be.
Here’s what I think. I think that allowing total debt to rise much faster than production for a protracted period is inadvisable for several reasons, not just limited to questions of inflation and that doesn’t matter whether the debt is household debt, business debt, or Chicago’s debt. The U. S. is somewhat insulated from that by the status of the dollar. And keep in mind that debt is, ultimately, time-shifted consumption. We’re living today with the consequences of borrowing decisions made decades ago as well as the decisions we make today.
If you’re wondering about the title of this post, it’s an example of a “magic square” from classical antiquity—when the words are arranged in a square they read the same left to right, right to left, top to bottom, and bottom to top. Nobody really knows what it means, if anything, but the translation I was thinking of is “the sower, with great effort, turns the wheels” which pretty well describes what Janet Yellen seems to think she’s doing, doesn’t it? That it’s magical gobbledygook is a plus.
