Although shocks can disrupt the pace of economic activity, they have nothing to do with the phenomenon of recurrent boom-bust cycles. The cycle requires something more. A central bank, for instance.
Modern monetary theory (MMT) conveniently facilitates dangerous policies and ideas that seemed unrealistic, like universal basic income and “helicopter money,” and that have been particularly propagated by government-sponsored economists for the past few years.
A relatively new challenge to the Austrian framework comes from the “market monetarists” and their endorsement of a central bank policy of “level targeting” of nominal gross domestic product.
What we observe today is a desperate fight against deflation. We know that this situation is unsustainable, but we do not know to which side the balloon will fall.
Today's rate cut of 50 basis points is the largest rate cut since December 2008, in the midst of the aftermath of the financial crisis. But Chairman Powell insists the US economy is "strong."
There are echoes of the 1973 oil shock in the current virus scare and resulting economic seize-up. Central banks are likely to respond similarly: with "stimulus" and inflation.
By being so dovish for so long, the Fed has greatly limited what it can do in case of recession without resorting to untried and radical solutions like negative rates.
During January 2020, year-over-year (YOY) growth in the money supply was at 6.32 percent. That's up from December's rate of 5.53 percent, and up from January 2019's rate of 3.38 percent.
Central banks are driving asset price inflation in stocks and real estate. That means people holding those assets get richer. But everyone else just gets higher prices.
The Fed's balance sheet has risen to $4.1 trillion from $3.7 trillion in August. Nomi Prins discusses what this policy shift means and what it portends for 2020.
