The timing of the next global depression is getting closer than you think
John De Goey: We will be in for a world of hurt as soon as government deleveraging begins
There’s a real conundrum shaping up for central bankers around the world and the politicians they report to. Damned if they do; damned if they don’t. Raise rates, that is.
I suspect the real reason politicians purport to not think about monetary policy is that the subject is altogether too painful and the choices on offer are simply competing variations of how one might commit political suicide. Raise rates to stave off inflation? Die by drowning. Keep rates at generational lows for the foreseeable future? Die by fire.
The plan worked with the help of wingman governments, which were going through money like grade schoolers go through junk food. With the singular exception of the “lite” version of the same approach that was taken in response to the global financial crisis in 2007-2009, the “spend your way out of trouble” approach had never been tried before.
Back in September 2008, George W. Bush, then the United States president, said: “If money doesn’t loosen up, this sucker could go down.” That’s not Shakespearean prose, but it illustrates that the outcome was far from certain. Mercifully, the plan worked.
That’s the good news. The bad news is that the medicine used to solve the problem of excessive stimulus created two new problems: asset bubbles in just about everything and an economy that has become addicted (there is no other word for it) to the stimulus drug. As with any addiction, the challenge is how to break it.