Consequences of faulty central bank policies

Essay by Dr. Tillmann C. Lauk; presentated at the ECAEF Workshop, in Bratislava on September 8, 2016 

Since the GFC1 of 2008 all central banks of the Triade are pursuing the same monetary policies. All central banks of the advanced-/over-indebted economies stick to this recipe. The main tools are QE2, ZIRP3 and NIRP4 and possibly in the future „helicopter money“ and a ban of cash. All tools have in common that they are highly repressive, malicious for the economy (mal investments), they stealthy expropriate savers, and massively hurt retirees. What the tool-kit of central banks is targeting at:

• Quantitative Easing means buying assets from the commercial banking system which in return gives cash to the private banking sector. The money required for those purchases is simply „printed out of thin air“.

• 1st Rationale: increase credit to the economy in order to stimulate aggregate demand = what is supposed to spur productive investment and employment.

• 2nd rationale: create a wealth effect through raising asset prices = equities and other (financial) assets.

• 3rd rationale: through this increase of the money supply try to create controlled inflation and to devalue currencies in the hope to stimulate exports.

• 4th rationale: ZIRP or even NIRP aim at (a) bringing down the debt service obligations of the ever increasing sovereign debt and (b) forcing savers to spend.

Now, let’s check whether data support that statement …

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