Wednesday, May 11, 2016

The Inevitability Of Unintended Consequences
Peak Prosperity's Adam Taggart explains why central planning efforts will ultimately backfire .. "The inability of the central State to recognize its vulnerability to the law of unintended consequences is mighty. Each generation of policymakers refuses to learn from the errors of the preceding ones, and remains confident that as long as it has good intentions (at least publicly), success is inevitable. But instead, we get bungle after bungle. The economy is slowing? Fill the banks newly-printed capital! They'll lend it out, thus increasing the velocity of money, spurring consumer spending and re-igniting economic growth. This was the thinking in the wake of the financial crisis slowdown -- but what happened? The banks realized it was much safer to hold on to that new money, lever it up and buy 'safe bet' instruments like U.S. Treasury bonds -- thereby making risk-free profits. The money that the banks did deploy largely went into the assets that most favored the banks and their richest clients, resulting in the widest wealth gap our country has ever experienced in its history .. Money velocity still not perking up? Take the bold step of charging negative interest rates on bank deposits! That's sure to get money out into the larger economy, where it can seek a positive return. This is what a growing number of countries are experimenting with today; but like Japan and the EU are realizing, imposing negative nominal interest rates actually boosts demand for cash, gold and safes to store them in. Turns out, desperate and bizarro-world tactics like NIRP cause investors to prioritize return OF capital higher than return ON."
LINK HERE to the essay

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