Sometimes you have to look at what is the base assumption. because sometimes you have a groupthink around the base assumption and everybody agrees to the same thing and acts reflexively and doesn’t really challenge what is going on. I think we have reached that point with the monetary policy. The assumption is that if you want the economy to improve, if you want more jobs, if you want more consumption, what we need is ever-easing monetary policy. My point is that if one jelly donut is a fine thing to have, 35 jelly donuts is not a fine thing to have, and it gets to a point where it’s not a question of diminishing returns but it actually turns out to be a drag. I think we have passed the point where incremental easing of Federal policy actually acts as a headwind to the economy and is actually slowing down our recovery, and I am alarmed by the reflexive groupthink of the leaders which is if we want a stronger economy, we need lower rates, we need more QE and other such measures.
This blog has been saying this for over three years now and in stronger terms. It would have been better had Mr. Einhorn gone further in his observations, but for one still in the system that can be very dangerous. If markets were free and government was limited, many would speak out without fear of retribution.
Secretly, Fed officials likely agrees with Mr. Einhorn. Yet they cannot say what they think for two very simple reasons:
- Stopping QE is both an admission of failure and a recognition that government cannot manage an economy. Attempting to do so is what caused the current mess. Government has finally become so big and intrusive that the economy has ceased to work. It will not rebound until government size is cut, both in terms of spending and regulations.
- Stopping QE exposes government as bankrupt. It is spending more than it can cover in taxes or capital market borrowing. Without the Fed printing money, the government would be unable to pay its bills.
Hence, the Fed will continue its massive counterfeiting in an effort to support government. It is a false but necessary myth that government can manage anything no less an entire economy. This myth is what has enabled government to grow and expand its power. The myth must be preserved at all costs.
The Fed will continue to print to hide the fact that government is hopelessly bankrupt. It is literally an emperor without clothes and without skin. It is unable to support itself. It is and has been a Ponzi scheme for the better part of a century. Its time is nearing and end and the Fed is its only source of survival. That is why the Fed will continue to do the same thing even when it knows it will do no good for the economy and may do much harm.
The immorality of the political class will destroy the country before they relinquish their power. This ending cannot be prevented much longer.