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Central Bankers Fear Long Term Price of Short Term Fix

The Fed’s controversial “Quantitative Easing” policies are only the most prominent of a number of similar actions by central banks around the world. Many countries’ central banks are pursuing a policy of easy money and low interest rates in an attempt to boost moribund economies and low investment. Yet at a recent meeting of central bank heads in Washington, the tone was pessimistic. Easy money policies may help boost the global economy in the short term, but bank heads are now beginning to worry that they are exposing the global economy to some serious long-term risks.

The Wall Street Journal reports:

Mr. Shirakawa, as he often does at global conferences, sought to draw on Japan’s long experiences with low interest rates and slow economic growth to warn other central banks about their challenges.

“Even with monetary easing,” he said in prepared remarks Saturday, “economic entities with excess debt neither increase expenditures nor embrace more risk taking until their debts are reduced to an appropriate level.” Lower interest rates ease the pain of high debt, Mr. Shirakawa said, but low rates also reduce the incentive of firms and governments to fix their debt problems by paying it off, he warned. The policies could also push up commodities prices, he said.

Global economic management these days revolves around a bet that unconventional monetary policies will pay off before the long term side effects become too expensive. About all we can do is hope that those who placed this bet knew what they were doing; as Julius Caesar would say, the die is cast.

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  • Otiose8

    The die is cast is right. You don’t have to read too deeply into Mises/Hayek to realize that these persistently low interest rates, if they’re right, are a major disaster unfolding in slow motion.

    Even if the central bankers got religion today and they and governments were to back off and let markets sort matters out, we still are going to be feeling the effects for years.

  • Stacy

    Word was leaked over the weekend that another round of QE was in the works by the Fed. Low-and-behold, the DOW is up over 160 pts today. Small problem: gold, silver, and oil are also up. It’s a currency war and,”speculators” and Iran will be blamed, but when gas reaches $5 a gallon, send a thank you note to Ben.

    They’re going to ruin us with their hubris.

  • Kris

    “as Julius Caesar would say, the die is cast”

    Perhaps more apposite would be “Ave, Caesar, morituri te salutant”.

  • Gary

    Red pill or blue pill…it doesn’t matter, we are all living in the Matrix now…a fantasy world where the money people value has no value.

  • Jim.

    A 2% 10-year Treasury is the Fed’s equivalent of an Adjustable Rate Mortgage.

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