It has almost become a theme of this site that Keynesianism dominates economic thinking around the world. Now, comes “proof” that in order to stimulate economic activity all that is needed are huge quantities of freshly printed money pumped into the financial system.
That “proof” comes from Japan where Abenomics has been in play since 2012, when Shinzo Abe was elected prime minister on a platform of implementing Keynesian tools to jar Japan out of its economic doldrums. Revision of data shows that Japan’s GDP grew 1 percent in the third quarter, continuing an economic resurgence attributed solely to Abenomics.
Mario Draghi, ECB president, recently reaffirmed his commitment to quantitative easing, and, when finished, the ECB’s holdings — which will be purchased with freshly printed euros — is expected to be larger than that of the Federal Reserve.
Often forgotten is China’s loose money policies — primarily lower interest rates by the People’s Bank of China — designed to reinvigorate a slowing economy. And, central banks of many smaller countries are opting for cheap money.
Presently, in the US all focus is on the Fed raising its fed funds rate, allegedly because of an improving economy. However, as noted before on this blog, the markets are not buying the position that the US is ready for higher interest rates.
Comments about higher interest rates by members of the Fed have stopped stock market rallies and even sent stock prices into downward spirals.
Even if the FOMC (Federal Open Market Committee — the rate setting committee for the Fed) raises rates December 16, it does not mean that tighter money is in store for the US economy over the long run. There has been too much “proof” that easy money solves economic woes, not more expensive money.
Truly, we are living in a world of easy money, one that will result in higher prices for gold and silver. It is only a matter of time, and with the metals now in a four-year swoon that time may be sooner than later.