foretelling a long period of sluggish growth and low price inflation. The economy may want to go into a deflationary hibernation, they say. But since the feds can print and spend with impunity, it may be a long time coming. Plus, if the government is able to force people into bank accounts – and out of cash – it will be able to tax savings and further stimulate spending. With these new tools, the feds should be able to prevent a real correction for many years. They suggest that we prepare for an economic “Ice Age,” with little change year to year. Asset prices won’t fall because the central bank is actively buying bonds, and maybe even stocks, adding new money to the financial economy. Consumer prices won’t rise because there is no real growth in demand. Debt will increase – but it is hidden and forgotten in central-bank vaults. Maybe so. But I don’t think you should expect it. It could lead to a dangerous complacency. The feds might be able to hold this together and they might not. This
they control more and more of the capital structure – bought with free money under cover of financial necessity. Gradually, there is less and less “free” in free enterprise. And gradually, there is less and less real wealth created. Gradually, too, the noose tightens around your financial neck, as there are fewer and fewer doors open and fewer places that are safe to keep your wealth . No one likes to have his wealth “nationalized” at the point of a gun. But everyone likes having it bought from him for more than it is worth. This is what has happened already in the QE programs in Europe and America... and even more so in Japan’s QE program (with an extra helping of equity buying). How much more of it the world can take is anybody’s guess. No one knows how far this can go. But as far as I know, no economy has ever been successfully Sovietized by printing money and using it to buy assets. DON’T SWEAT THE ICE AGE Many economists are
Ice Age formula – dousing a debt-soaked economy with more debt – is not a way to build a healthy economy. It is just a way to shift real resources to the government and its cronies without causing either a frightening spell of inflation or deflation. It might work for a while. But the falcon of asset prices becomes deaf to the falconer of the real economy. Then, in a kind of financial never- never land, he gets lost completely and flies into a tree. Asset prices fall to the ground. Investors panic. Lenders call their loans. Art investors rush to auction off their tableaux. Lines form at ATMs. I am not going to speculate on how or when this occurs. “If you’re in a theater and one person walks calmly to an exit, it doesn’t attract much notice,” said Vern Gowdie, an Australian colleague. “Two... three... probably not much reaction either. But if you have three people suddenly run for an exit, you’ll have a panic.” What then?
34 | June 2017
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