VodkaPundit

Just Gimme One More Hit of ZIRP, Man

CNN’s Virginia Harrison boldly proclaims that the “world is still hooked on cheap money.”

Or as we used to say in high school back in the ’80s, “No s***, Sherlock?*”

Harrison comes close to desiring the crux of the problem, but never quite fleshes it out — perhaps to keep her readers from repeating that 1929 classic sporting event, the Wall Street Swan Dive. Here’s as close as she gets:

Central banks in Canada, India, Australia, and Norway have cut interest rates this year and most of those countries are expected to ease further. Rates in Switzerland have languished in negative territory since late last year. And policymakers in Europe and Japan are printing money as a tool to support growth.

The efforts illustrate cracks in the world economy. Five of the seven biggest economies are in cheap money mode, while the U.S. and the U.K. remain stuck in neutral — at least for now.

The U.S. was on track to raise rates as early as next month, but the problems plaguing China and rest of world may put that off. On Wednesday, president of the New York Federal Reserve William Dudley poured cold water on an imminent rate rise, though more clues could come this week when Fed policymakers gather for their annual retreat in Jackson Hole, Wyoming.

Here’s the fleshier version.

Our economic problems are global, but the roots are strongest in just two places — Washington and Beijing.

The Fed (and previously Congress) pumps cheap money to keep the economy afloat, hoping for a mild bout of inflation to cure the “disease” of business hoarding cash instead of spending it, and to inflate away that other teensy problem called the national debt.

China pumps cheap money to keep the jobs machine working overtime, hoping to continue papering over decades of malinvestment, and to keep the export sector thriving. China also has the teensy problem of needing to create 15-20 million jobs each and every year, to prevent city-bound peasants from revolting against the regime.

The Fed keep trying to inflate, but China keeps exporting deflation to us in the form of cheap goods. Should the Fed raise rates here, like they keep threatening to do, the capital flight from China would create a credit crunch China can’t afford — which would likely bring down the global economy in yet another deflationary spiral.

Meanwhile, the Fed’s cheap money encourages speculative, bubble investing, and China’s cheap money encourages continued malinvestment and overproduction of export goods.

The two biggest economies in the world are run by drug pushers, and everybody’s an addict.


*I hope kids today still say that where their parents & teachers can’t hear them. It’s such a lovely combination of crassness and well-earned disdain.