Originally Posted by
r3volution 3.0
I think we're saying the same thing in different ways.
The fundamental economic problem is that the state's policies are diverting increasingly large quantities of resources toward relatively unproductive (if not actually consumptive) enterprises (e.g. "zombie companies"). Since the state finances these redistributions through inflation (because of political limits to conventional taxation), the end result will be inflationary. Barring a radical political change that would curb the growth of the state's economic interventions, we're going to experience declining economic growth and rising inflation. We should expect a repeat of the 1970s, except this time there will be no Volcker on a white horse. The misallocations are much worse now than they were c. 1980, and the liquidation required to correct them would be so painful that a Volcker-esque policy is politically impossible. I don't see any plausible argument for any outcome other than massive devaluation. That doesn't mean that there can't be a traditional, deflationary recession at some point (or several points) over the course of this future, because the Fed isn't always able to predict exactly when and how much it needs to print to prevent one, but they aren't going to allow the kind of cleansing liquidation that's necessary to fix the system. If they launched nearly half a trillion not-QE QE during relatively good times, imagine what they're going to do if/when GDP actually goes negative one quarter. Draghi's "whatever it takes" wasn't hyperbole.
P.S. If you look at a chart of the federal funds rate, note how there have been lower highs and lower lows each cycle since c. 1980. In a way, that tells the whole story. There's lot of talk by central bankers and mainstream economists about the zero bound and unconventional monetary policy, even leaking into the popular press, but the silence as to why we're at this point, or what it really means, is deafening. They treat it like some kind of technical difficulty solvable by tweaking the XYZ lending facility, when actually it represents the terminal crisis of this monetary system.