Central Banks Are Living Dangerously---They Never Learn

All central banks are proceeding on the assumption there is no credit crisis on the horizon. This hubris was vividly demonstrated by Janet Yellen who a year ago told us she did not believe there would be another financial crisis in her lifetime, thanks largely to reforms of the banking system since the 2007-09 crash. That crash was a surprise to central bankers then, as was every crash before. Even Benjamin Strong in the late-1920s believed his new Federal Reserve System had tamed the business cycles of the previous century, though he died before being disproved by the 1929 Crash.

Strong’s hubris then was the same Yellen’s hubris last year. Central banks have learned nothing about the credit cycle in nearly a century. If they had, they would be promoting sound money and a hands-off policy, while ensuring commercial banks restrict their credit expansion. They would let malinvestments wash out of the system, not build up for one huge crisis. They are not even aware, it seems, that they are living dangerously as they raise interest rates into and beyond the zone that will trigger the next credit crisis.

 

 

https://www.goldmoney.com/research/goldmoney-insights/living-dangerously

 

David Stockman's Contra Corner is the only place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked. Subscribe now to receive David Stockman’s latest posts by email each day as well as his model portfolio, Lee Adler’s Daily Data Dive and David’s personally curated insights and analysis from leading contrarian thinkers.