Rudi Fronk and Jim Anthony, co-founders of Seabridge Gold, discuss how extreme monetary policy does not stimulate growth.
As we have predicted for some time, central bankers are doubling down on the madness that has failed to achieve economic lift-off. It is no surprise to us that easy money has not stimulated growth. There was never any reason why it should. It reminds us of trying to force hay into the wrong end of an elephant.
Savings and investment should always lead consumption and not the other way around, as the central banks seem to believe. Investment should increase productivity and incomes, causing increased demand, higher inflation and tightening monetary conditions. This is not the way central banks see it. For them, everything goes in reverse. They think that cheaper money means more investment and more consumption which will stimulate investment. The central banks want more inflation because they think that will generate growth, rather than growth generating inflation.
We have now had nearly 30 years of Keynesian reverse logic and it is clear that it does not work. Investment is down; there has been essentially no recovery in capital spending since the Financial Crisis. Productivity has declined and is now negative. Incomes have stagnated and consumer spending has slowed. Cheap capital has gone into yield-chasing speculation, share buybacks and mergers. Low interest rates have destroyed savers, pension funds and bank profits while generating bond and equity bubbles.
In our opinion, there is no way back from the extreme monetary policies of QE, ZIRP and NIRP. Normalizing interest rates will destroy the bond and equity markets which need minuscule interest rates to retain their relative value. Reversing QE will remove the surplus dollars that have kept the system from imploding. The only option the central banks have left is more of the same …read more