Monetary policy is spent

Monetary policy is spent

Monetary policy is spent and further easing could put the financial system into the red danger zone. Gold’s spot price, monetary policy’s voting machine is signaling to the market that monetary policy is spent. So the great gold rally is underway.

Negative interest rate policy (NIRP), is a backfiring gun. Moreover, endless quantitative easing QE is the market’s bubble-blowing clown that is already passé. 

The law of diminishing returns also applies to Monetary policy. If the world’s central bank the Fed and its western aligned sidekicks, the ECB, BoJ, and BoE doubled down on NIRP and QE it is likely to do more harm than good, monetary policy is spent, it has no more rounds in the chamber.

Mario Draghi, President of the European Central Bank tenure is expiring and the jury is still out on whether the former Goldman Sachs alumni will be known as the man who saved the euro during the EU’s sovereign debt crisis, or did he just delay the inevitable.

But the ECB’s Draghi whatever it takes of negative rates and multi-billion euro monthly asset purchases has not moved the economic needle.

Monetary policy is spent and Europe’s largest economy Germany is tinkering on a recession with industrial output in contraction for two consecutive months

Germany’s industrial production fell 0.6% in July, compared to a 1.1% contraction in June, which is fueling recession fears in the Eurozone’s largest economy. 

With monetary policy spent what will the new ECB President Christine Lagarde, former head of IMF propose when the next recession no doubt is soon officially declared

Christine Lagarde leaves the IMF in the wake of making debt-ridden Argentina a $57 billion loan, it was the IMF’s largest loan in its history. Today Argentina is in crisis as its people take to the streets, there are now food riots. It is death by debt.

So it is an IMF’s debt relief, but for whom?

Now the soon newly appointed ECB President Christine Lagarde wants to take her wrecking ball to the ECB with more accommodative policies. 

Whether Lagarde as the new ECB President does too little or too much frankly doesn’t matter, monetary policy is spent

In other words, expect the central banks to disappoint in the next pending economic downturn. 

Bank of France Gov. François Villeroy sums up the monetary policy is spent view. “The ECB’s monetary policy is doing its duty, but it can’t do everything, and it certainly can’t perform miracles” said the Bank of France Gov. François Villeroy de Galhau in a recent interview with Swiss media. 

But who is asking the ECB to perform miracles? Just save us from a Weimar Republic currency crash.

Monetary policy is spent and the law of diminishing returns apply

Further accommodating stance, which Lagarde advocates, is likely to debase fiat currency to junk status. 

Moreover, disconnecting risk from the market is like designing an electrical system without a circuit breaker. “A second asset-purchase program the ECB will continue to disturb markets and prices do not reflect the risks anymore,” said Jurgen Stark, former ECB Chief Economist.