FR, ECB, BoJ: Central Banking’s Grand Experiment

Central bankers, most of them versed in the history of the Great Depression and deflation, haven’t been exactly reading from the same hymnal for the past few years. There are signs, though, that this might be changing.

Perhaps it is merely a coincidence, but the U.S., with the most activist central bank and after more than five years of quantitative easing and a zero interest rate policy, has the best looking economy in the developed world. Europe, where Germanic austerity and central-bank timidity prevails, looks the worst. Japan is somewhere in the middle, both in terms of its economic recovery and QE.

Preliminary results of these grand monetary experiments are now in and the results are clear: More monetary stimulus equals a strongest economic recovery.

Hey, maybe this isn’t a coincidence after all?

Although the U.S.’s recovery hasn’t been ideal, it is far better than what we see in Europe and Japan. Sure, it has been slow, unevenly distributed, with soft spots and blemishes. But it is a recovery nonetheless, one that is the envy of the developed world . . .


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  1. 4whatitsworth commented on Jan 15

    In the short you are right and in the long run we are all dead so on final analysis I suppose the living are judged to be right!

    Anyone have a good graph on when the QE bonds expire?

    • DeDude commented on Jan 18

      Bonds don’t expire – they get reissued.

  2. RW commented on Jan 15

    The results are certainly in, yes, but you can bet your bottom dollar Austerians, Deficit Scolds, Inflationistas and Very Serious Persons generally will never admit it.

    Given the lack of adequate govt. fiscal stimulus (after the 1st, insufficient rounds) the Fed did what it could with modest success but its tools are far less effective near the zero lower boundary and a disinflationary regime than they are WRT inflation.

    • RW commented on Jan 15

      Meant to add that you may not be able to conclusively ‘prove’ a positive no matter how many times you try but all it takes is one straight contradictory shot to demonstrate a negative — that a claim or theory is wrong — and that’s where the Austerians, Deficit Scolds and Inflationistas are now: Every prediction they made from government failure and currency ‘debasement’ to market collapse not only did not come to pass but in most cases it’s opposite occurred.

      You don’t get results in real-world economics or complex systems generally much clearer than that but no one need hold their breath waiting for any admission of error of course.

      VSP’s will just move without comment on to the next hot topic demonstrating they’re in the know; they never really understood anything, they just wanted to be taken seriously by people that other people claim are serious (or something).

    • barbacoa666 commented on Jan 15

      Yes, just imagine how the recovery would have gone if cash would been disbursed to all citizens, rather than just the wealthiest.

  3. ilsm commented on Jan 15

    Interesting, militarist Keynesian stimulus rose as part of GDP until 2010, then gradually slowed. While in 2015 USD militarist Keynesian has stayed well over $600B. As Bastiat observed anything is better than war spending.

  4. Concerned Neighbour commented on Jan 15

    The results are certainly not all in. It took years for the extent of capital mis-allocation resulting from the Greenspan put to be revealed. Bernanke’s put was of a larger duration and significantly higher strike price; I highly doubt the effects will prove all roses and rainbows.

    As I’ve said before, I think the first QE, however unfortunate, was necessary and therefore good policy. There was an emergency that required emergency measures. Subsequent QEs did little other than cause asset price inflation, thanks to which we have fresh – and arguably more extreme – bubbles to worry about now.

    At best, Abenomics has been a mixed bag. Frankly I think it’s incredibly reckless and will likely do more harm than good.

    The supposed point of QE is to push down the cost of borrowing and encourage more risk-taking. Given that, what’s the point of QE in Europe now? The cost of borrowing is already ridiculously low. And with real estate and stock prices through the roof already, who out there thinks we need more speculation (aside from the sick banks and speculators)?

    The obvious solution, as it has been from the start of the Great Recession, is massive fiscal stimulus. The economy needs more money circulating; borrowing rates are about as low as they’re going to get, and trickle-down monetary policy isn’t sufficient.

  5. sellstop commented on Jan 15

    The game is not over. Let’s see what happens to U.S. when Europe performs the experiment. These are, after all, experiments in relative currency values. What happens when every nation does it?
    It may be a little like markets, ie, it doesn’t work when everybody does it.
    And that leaves out the small nations, particularly those with the pegs to the Dollar. The middle east has quite a bit of unrest over the last few years. People are unhappy there for a reason, and it has little to do with religion, and more to do with the cost and quality of life and the prospects for the future, and that has a lot to do with currency values. The USD is strong now, but what happens when our balance of payments hits the skids as the next recession begins and we still haven’t paid off our debts with our now stronger dollar? How can we get a weaker currency then? Perhaps when we outright default on our debts after we refuse to pay taxes and start another war. Or…

  6. george lomost commented on Jan 15

    Last time I looked the U.S. and Japan were nation states while Europe is an amalgam of nations, some of which are doing very well thank you. Apples to apples to (?)

    Isn’t China the wold’s second largest economy and don’t they have a central bank?

    Maybe it has something to do with relative population growth vs stagnation vs population in the process of collapsing.

  7. intlacct commented on Jan 16

    The lesson of the 30s shouldn’t be ‘never permit inflation’. It should be ‘never pursue economic policies that facilitate the rise of looney parties coming to power and making the problem orders of magnitude worse’. Pursuing deflationary policies is facilitating the rise of the kooks. The ECB needs to stop and reverse course.

  8. S Brennan commented on Jan 16

    I would argue that pulling on a rope will yield better results, for far less effort, than pushing on it…and I think FDR proved that point with directly applied stimulus.

    But I want to be clear, I’m not disagreeing with your overall premise, that, if you weave a rope thick enough, it will stiffen to the point that it will not buckle..and you can push with it.

  9. RobertKerr commented on Jan 19

    re: “…the U.S., with the most activist central bank and after more than five years of quantitative easing and a zero interest rate policy, has the best looking economy in the developed world.”

    The economy only looks good if you squint. If you measure job counts not wages. If you measure total income. market indexes or GDP, not median personal or median houshold income. If you measure the U3 unemployment rate not U4, U5 or U6 or the unemployment rate of recent graduates (17%). This economy looks fine from your 50th floor, but get down in the streets some day, Mr. Ritholtz, and you’ll appreciate how badly broken it is.

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