The easy money antics of the Federal Reserve and other central banks are delusional and bound to lead to a global crack-up, according to Yale University economist Stephen Roach.
Roach, former chairman of Morgan Stanley Asia, suggested the "big bazooka" of quantitative easing has led to inflation of assets like stocks and encouragement of currency depreciation — ingredients for disaster.
"The world economy is in the grips of a dangerous delusion," he declared in a column for Project Syndicate
"Not only have wealth and currency effects failed to spur meaningful recovery in post-crisis economies, they have also spawned new destabilizing influences that threaten to keep the global economy trapped in a continuous series of crises."
As evidence, Roach noted that although the Fed exploded its balance sheet from less than $1 trillion in 2008 to $4.5 trillion in 2014 — a quadrupling of money stimulus — U.S. economic growth is stuck at 2.3 percent, considerably below the 4.3 percent norm.
Meanwhile, Roach said the American consumer has never recovered from the 2008 financial meltdown.
"Unsurprisingly, the wealth effects of monetary easing worked largely for the wealthy, among whom the bulk of equity holdings are concentrated. For the beleaguered middle class, the benefits were negligible."
Despite the failure of Fed policy, Roach noted both Europe and Japan have rushed to imitate U.S. quantitative easing.
"As the baton of excessive liquidity injections is passed from one central bank to another, the dangers of global asset bubbles and competitive currency devaluations intensify," Roach wrote.
"Relying on financial engineering, while avoiding the heavy lifting of structural change, is not a recipe for a healthy recovery."
In a blog post on a similar topic, David Stockman
, former White House budget chief during the Reagan administration, said, "exploding money" supplies and subpar economic group have been linked for decades now.
"The long and short of it, therefore, is that there has been a dramatic downshift in the trend rate of economic growth during an era in which central bank intervention and stimulus has been immeasurably enlarged," Stockman wrote on his Contra Corner blog.
In his view, the mammoth blow-up in the Fed's balance sheet "represents spending power made out of nothing."
"Accordingly, the greater the size of the Fed's balance sheet, the greater is the amount of fraud released into the financial system and the more intrusive is its deforming and distorting impact on the capital and money markets and ultimately the real Main Street economy."
Stockman said the Fed and other central banks around the world have a "rank ambition to operate as masters of the financial universe — unrestrained by either political authority or the discipline of honest free markets"
"So motivated, they have bamboozled the political class and the public alike into the false belief that they are the indispensable element — the very mainspring — of modern economic life."
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