YOUR MONEY

Which way is up – oh learned economic experts?

The world of central bankers is becoming more and more chaotic by the day as the old rules and logic fly out the door!

Should Central banks focus on unemployment or inflation/deflation or GDP or trade balances or rising house prices when deciding to intervene?

The primary principal for the 20 years leading up to the crash of 2008 was to keep inflation ‘managable’ to under 3% as, if nothing else, government debt becomes a  loans shark disaster when international market interest rates rocket.  Inflation also leads to people falling behind compared to rising prices for food, fuel, etc. and leads to increased poverty and social unrest (and possible revolt).

But since 2008, the focus has been on keeping the capitalist markets ‘cash fluid’ with cheap – almost free – money through government bailouts and bank prime rates of 1% or less for some 4+ years running, as well as other ‘clever’ ways of priming the cash flow through ‘quantitative easing’—a shell game  that has add trillions to the national debt of the USA alone!

With the US and Canadian and British economies showing steady signs of improvement and ‘life’ – in reduced unemployment, improved GDP and near or record stock markets, some central bankers – especially Ben Bernanke – have stated that they will taper off their buyback ‘subsidies’ soon.

While this makes sense and should have been done much sooner – since the lion’s share of the extra cheap money is ending up in speculative market plays -- fear and panic is setting in as these very same ‘beneficiaries’ and ‘players’ fear the end of the gravy train and ‘burst bubbles’ in their speculative games.

The new “enemy” we are being told, is DEFLATION – when the price of goods keeps on dropping.

Cheaper prices are good for consumers but deflation usually becomes a problem when ordinary people cannot afford to buy at even reduced prices, and manufacturing and importing grind to a halt with ‘over-capacity’ – resulting in greater unemployment and a vicious cycle to the bottom.

Some ‘experts’ see this danger approaching and the quest to control inflation has been given a new ‘spin’: inflation must be forced up to at least 2% to 3% or the economy will crash.    Governments must continue to flood the capital markets with almost free money to ‘stimulate’ the economy or else it will crash!

This mindset is currently Japan’s government policy, called Abenomics. And while given a fancy name after the current Prime Minister, it is the same foolish strategy that has been in place in Japan since the 1990s when it entered deflation – and has stayed that way for over 20 years.

Giving Toyota, Fuji and the other handful of super-conglomerates   almost free money has helped these companies make huge profits through their foreign branch dealings, but has starved Japanese retires of bank account income and made no difference to GDP and the overall Japanese economy.

Endless government infrastructure programs – whether make work projects or necessitated by almost annual earthquakes , especially severe ones at Kobe in 1995 and  Fukuoka in 2005 – have really not made an overall difference.

In general, it would be better, simpler and fairer, if governments wished to boost consumer spending to give each person a refund cheque or reduce income taxes.

That would prime the consumer money pump directly.  But adding billions to the national debt to primarily benefit banks and especially speculative investors and derivate plays is today’s central bank mindset.

Look to Japan’s lost almost ¼ century, you fools, and don’t fall into the same, deadly trap.

Even better, raising interest rates to historic norms will, if done gradually, spur companies to invest NOW in capital equipment and spur consumers to ‘buy’ before credit becomes more expensive. (In fact, this fear has been feeding the housing/condo boom in Canada for over a year now.)

It will also save private pension funds and national pension plans from ruin as they must keep some 40% of their assets in cashable, interest fixed bonds to pay retirees monthly cheques. For the last 4 years, nearly all have been losing money as a result, and have been forced to look for ‘better profits’ at higher risk investments – buying airports, hotels and even hockey teams.

The crash of Donald Trump International or the NHL Coyotes are two cautionary tales that I hope never befall our pension plans – or else all hell will break loose!!!