Every month seems to bring fresh evidence of mounting economic difficulties that need fixing by central bankers, which in turn cues more market fretting and then the inevitable panic. Central bankers almost slavishly react by curtailing their holidays and then act like Texas Rangers racing to the rescue of folk under attack from those beastly bond vigilantes.

Yet talk to patient, long-term investors and they are horrified by this monetary stimulating, fearing governments are just putting off the inevitable – a long painful process of adjustment to a low-growth world.

Perhaps more tellingly, some investors – especially those with a Keynesian bias  – believe governments are shirking their responsibilities and failing to provide the correct (fiscal) stimulus as a result of legislative paralysis. 

The most effective form of stimulus might be a well-thought out government infrastructure programme, supported by its own bank and bond issuance. The chances of this happening, given the current ideological warfare in the US, are close to zero.


Which leaves us with the daunting prospect of another bout of monetary intervention, which might take the shape of ‘conventional’ QE or more innovative intervention in the mortgage financing market.

The reaction of the markets in the short term would probably be positive. But I would wager the slow panic would set in if only because this extra bout of intervention simply will not work – everyone knew it, except for Bernanke.

That slow realisation will seep through into fear, first via accelerating gold prices and then a sudden increase of volatility at the first sight of any fresh financial crisis. Cue another ‘market correction’ and sell-off.




Monroe County’s homeless



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