I’d like to see a refutation of the argument below, which counters bearish perspectives. A few years ago I had the opportunity to question one of the most successful economist is the world as measured by millions of text books sales, Campbell Macconnell. He said, yes, the following is possible:
"One question that has long perplexed me is about the macro-economic impact of money printing in its various forms. In short, much depends on whether money printing can counter-balance debt defaults and zombies, such that the main impact is lower productivity and growth (like Japan), and not the long delayed financial armageddon. Loans written off and marked to market, non-performing loans, bankruptcies, and the like, eliminate money, but that money can be replaced by money printing. Likewise for declining velocity of money (via Freidman’s PT = MV). Yes, with the moral hazards of cheap money, poor businesses ventures happen, but those ventures still employ people and move the economy, just inefficiently. And large efficiencies from technology countervail, so that GDP can still do OK. True, panic can undermine this long scenario, but panic gets simmered down sufficiently by central bank printing, in part because enough big and institutional investors understand the very logic I explain here. This synopsis might explain why years of predicted financial doom (as opposed to normal periodic ~20% downs in markets) have not materialized since 2008, and may not materialize for a long time, if ever. Instead, it’s more like Japan—25 more years of tepid economy, but no thundering crash.”
Federal reserve debt could go up 30x from now at near zero central bank rates, and the scenario painted here not happen. Rising rates would likely do damage after they have served the PR purpose of supporting perception of fiat currency systems, but then central banks bring them back to near zero.
Something has to account for now 7 years of dire predictions being wrong. And remember, if you lost half your stock wealth today, you’d be back to January 2013 levels, which is about 15% above the January 2011 levels, and things would climb again.
This site has said that the most dangerous words in investing are “this time is different.” Yet it has also said that near zero central bank rates are indeed a big new difference—never done before. Which is it? I’d say key people in big finance finally caught up to the post 1971 reality that huge debt does not matter until only its near zero interest rate can’t be paid. Total debt is largely irrelevant in a 100% fiat currency system.
I believe this website must address this critique head on, and I hope it does.
~Rob Laporte
Rob@2disc.com