Monday, September 05, 2016

The Federal Reserve Feedback Loop
"In a word, the Fed has failed in its mission to restore robust growth to the U.S. economy. That failure has laid the foundation for the next global monetary crisis. This failure was inevitable. The reason is that the problems in the economy are structural.
Since structural solutions are not on the horizon due to political gridlock, the U.S. economy will remain stuck in a low-growth, Japanese style pattern indefinitely. Without structural change, this pattern will persist for decades as it has in Japan already.
This weak growth scenario will be punctuated with occasional technical recessions, and exhibit persistent deflationary tendencies .. That’s the best case, and not the most likely one. The likely outcome is a financial panic and global liquidity crisis caused by the Fed’s failed monetary policies. To understand why, it is necessary to understand the futile feedback loop in which the Fed, and all major central banks now find themselves .. The term 'feedback loop' is a popular expression for what physicists and complexity theorists also call recursive functions. In a recursive function, the output of one equation becomes the input for the next iteration of the same equation. The complex interaction of human behavior (setting policy rates) and the feedback loop (with a fixed point attractor) is a continual flip-flop in policy. First the Fed talks tough, then markets sink, then the Fed eases up, then markets rally, then the Fed talks tough again, and so on. This is the Fed circle game."
- Jim Rickards*
LINK HERE to the essay

1 comment:

Anonymous said...

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