Subject: Re: Martin Wolf on interest rates and QE

http://www.bbc.co.uk/programmes/b07krycg

[This runs for 42 minutes.]

Martin Wolf is the chief economics editor of the Financial Times, a position which should command some respect. The broadcast is an assemblage of comments from bankers, economists and writers, all addressing the complete uselessness of the monetary tricks that central bankers in Europe, USA, UK and Japan have been engaged on for the past 8 years. None of the bemused participants deny that this is the case today.

Listen if you wish, but it may be a waste of your time because the only thing you will learn is that reliance on central banks to redress the mess that passes as policy is a forlorn hope because, as speaker after speaker concedes, the uniform policies of QE and interest rate attrition are (i) useless in terms of their aim of reviving flagging economic growth, and (ii) making matters increasingly dangerous.

I have also addressed these issues (more sensibly, I hope) in “Economic Perspectives 3”, on this website.

Nonetheless, I offer the following personal reaction to what I have heard.

Not one of the many contributors was able to (i) predict the nature of the dire end-game to which all these frantic moves are leading, nor (ii) offer any viable alternative. Not a word from any of them on recognising that every boom driven by fiat money creation MUST generate its own bust, and that allowing the system to purge itself of all that toxic debt (none of which will ever be repaid) is an unavoidable outcome – painful but essential.

What an array of desperation is on display here, all of them conceding that nothing so far has had any beneficial effect. Yet, amazingly, several (such as Adair Turner) are suggesting that still more of the same could conceivably get these money-bloated, debt-ridden economies kick-started into action.

It’s clear that Martin Wolf himself is as clueless as all of those he assembled. Most of the economists and bankers on the programme are steeped in the LSA brand of monetary thinking, and all are equally bemused by its persistent failure – as if it is really the people, rather than the policies, that are at fault in not responding dutifully to the stimulus by going out and spending! Several of the invitees have, at least, done a good job of highlighting the anomalies that guarantee the failure of central bank policies.

Even the brief references to digital money missed the main point: instead of seeing it as a currency that cannot be corrupted by inflating its supply through money-printing, they see digital currency as a way of hiding the banks’ destructive gambits from the public.

The few realists like Mervyn (Lord) King, former governor of the Bank of England correctly describe desperation measures such as the zero or negative interest rate policy as “the last refuge of a scoundrel” and its effects as being worse than the disease.

Austrian economists (none of whom, unsurprisingly, were invited to contribute) always point out that savings are the engine of growth in any economy, whereas the central bank policy of zero or negative rates, far from encouraging a productive renaissance, has had the effect of (i) destroying the incentive to save; (ii) creating asset bubbles; and (iii) encouraging people to hoard rather than spend.

Listen to this if you feel you need a free lesson in economic lunacy!