Executive Summary

• Why despite winning battle after battle, the central banks will lose the war
• The viscious cycle is already underway in the Emerging Markets
  • Turkey
  • Argentina
  • Brazil and Mexico (not to mention Venezuela)
• Italy is dragging Europe into crisis
• The weaker segments in the US are already in collapse

If you have not yet read Part 1: The End Of Stimulus? (And The Start Of The Crash?), available free to all readers, please click here to read it first.

Win the Battle, Lose the War

The central banks have been winning battle after battle in the “markets” (which are so deformed that they need and deserve quote marks around them to indicate that they are not truly markets anymore).

But they are going to lose the war.

Why? Because infinite growth is not possible on a finite planet.

Because interfering with markets to the point that they become “markets” will always result in bad outcomes.

Because it’s not possible for a small, unaccountable group of unelected officials to monkey-hammer the price of money to an artificial level and escape the law of unintended consequences.

If an intended consequence of driving the price of money to zero and sometimes beyond into negative territory was to lower government borrowing costs, the unintended consequence was the near complete loss of fiscal restraint by those same governments.

The central banks intended for companies to use lowered borrowing costs to invest in hiring and property, plant and equipment, while the unintended consequence was that the corporations actually used the low rates to borrow heavily and then buy back their own shares.

The stated intention of negative interest rates in Japan was to spur spending but the unintended consequence was that they spurred savings instead.

And so on.

If the next crash is bad enough, hopefully we can finally dispense with the silly notion that a small cabal of unelected officials can dictate economic outcomes based on fiddling around with markets and by setting price targets. I would have thought the former Soviet Union had proved that sufficiently, but apparently not.