Power & Market

We May Not Be Doing as Well as Central Bankers Insist

“We are in a good place at the moment,” the head of the European Central Bank (ECB) told reporters on Thursday. And so concluded another ECB rate decision, to no one’s surprise, as quoted in the Wall Street Journal:

The ECB said in a statement Thursday that it would continue to purchase €1.35 trillion ($1.54 trillion) of government and corporate debt through June 2021 under its Pandemic Emergency Purchase Program, or PEPP. The bank also left its key interest rate unchanged at minus 0.5%.

If the central bank buying around €150 billion of government and corporate debt a month is a “good place,” may we hope to never see what’s considered a bad place. In addition, we are living in a world of upside-down economics where negative interest rates exist, meaning that some entities may actually get paid to borrow money. Like the Wile E. Coyote cartoon character, who can defy the law of gravity as long as he doesn’t look down, so too can the central bankers defy economic laws so long as the money supply goes up and interest rates stay down.

We’ve become complacent with “monetary policy,” which really just amounts to nothing more than inflationism. We are told by planners that it is okay to conjure up new money and give it to governments and the wealthiest corporations in order to avoid an unfathomable crisis. The fact that in a year from now trillions upon trillions of dollars will be created by central banks of the world and then given directly to select members of society doesn’t resonate with the masses; if they understood what the government has done to their money, alternatives such as gold, silver, and cryptocurrencies would be held by the majority of the population.

In North America, anticapitalist mentality remains stronger than ever. This week the newly appointed governor of the Bank of Canada, Tiff Macklem, presented his first policy decision:

The Bank is also continuing its quantitative easing (QE) program, with large-scale asset purchases of at least $5 billion per week of Government of Canada bonds.

At least in the USA, the Fed has the courtesy of not calling their multitrillion dollar asset programs “quantitative easing,” whereas their neighbors to the north have embraced central bank bond buying as if it were 2009 all over again. In fact, it was the first time since the beginning of this year that the bank started using the term QE. And while $5 billion a week might seem miniscule compared to the Fed’s $5 to $300 billion a week we’ve seen lately, it could be a sign Canada is not really in a “good place” at the moment (unless central bank bond buying is good).

But maybe Canada is in a great place! At least the bank’s overnight rate stayed at 0.25 percent, which is still better than a negative rate. The press release also noted:

The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.

How long will it take until the target is met? Perhaps with enough QE they’ll get there one day!

As for the Fed, they are in the usual media blackout period preceding the next Federal Open Market Committee (FOMC) meeting, the period being from July 18–30. In what may be one of the last statements until then, John C. Williams, vice chairman of the FOMC, gave a self-congratulatory speech on the success of the Fed and their response to the pandemic. Citing both the success and necessity of the Fed from 1913 until now, he concluded:

the actions we have undertaken harken back to why the Federal Reserve was created in the first place. That is, to do what only a central bank can do: to keep credit flowing when fear and uncertainty take hold, and in that way to foster a strong economy with maximum employment and stable prices.

Per the Chairman, all is well. The struggle toward the dual mandate might soon be met, and a liquidity crisis has been averted. According to Central Bankers, we are in a “good place at the moment.”

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