Shooting Blanks

Shooting blanks is exactly what the Fed will be doing — and every other central bank around the world, too — if (when?) the next recession comes before we ever get to a real recovery. That’s the warning from HSBC’s Stephen King:

Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery — both in the US and elsewhere — has been distinguished by a persistent munitions shortage. This is a major problem. In all recessions since the 1970s, the US Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.

What does the Fed do when a recession hits, but interest rates are already at zero? What’s the use of monetary stimulus when the economy is already awash in liquidity? What comes after a trillion?

This isn’t news to Longtime Sharp VodkaPundit Readers™. I’ve been warning you for years that we’re addicted to cheap money, and that the longer we’re on it the worse it will be when the next bubble pops.

And that sound you hear might just be the fat lady sharpening her bubble-popping pin.