Negative interest rates, the enthusiasm of central bankers near and far, are so self-evidently deranged, so utterly nuts, that we don’t feel obligated to say anything more about them that what we have already said here, here, and here.
But what else is crazy? How about cutting interest rates more than ten years into the longest economic expansion in history? With the stock market at record highs? And with unemployment at long-term lows?
We’ve always said that spend-your-way-to-prosperity economics – the ruling dogma of Keynesian economics, the official religion of our ruling classes – is batty. But even in by its own terms, loose money, lowering rates, and deficit spending are tools to be used in a downturn. In times like these the Keynesian catechism calls for paying down deficits and an end to “stimulative” monetary policies.
Everywhere you turn, the authorities are demonstrating their idiocy.
We’re not the only ones noticing it. Ray Dalio, billionaire founder and CEO of Bridgewater Associates, the world’s largest hedge fund, has written a new piece called “The World Has Gone Mad and the System Is Broken.”
We cite a few of Dalio’s points as evidence of the malady:
- “Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up.”
- “At the same time as money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps.”
- “At the same time, large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments—amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long.”
- “At the same time, pension and healthcare liability payments will increasingly be coming due while many of those who are obligated to pay them don’t have enough money to meet their obligations. Right now, many pension funds that have investments that are intended to meet their pension obligations use assumed returns that are agreed to with their regulators. They are typically much higher (around 7%) than the market returns that are built into the pricing and that are likely to be produced. As a result, many of those who have the obligations to deliver the money to pay these pensions are unlikely to have enough money to meet their obligations.”
So, says Dalio, “This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.”
So say we. That big paradigm shift means far higher gold prices, as the world makes the shocking discovery that the fantasies and manipulations of our monetary geniuses are a recipe for ruin. As the late Henry Hazlitt noted long ago, “The monetary managers are fond of telling us that they have substituted ‘responsible money management’ for the gold standard. But there is no historic record of responsible paper money management … The record taken, as a whole is one of hyperinflation, devaluation and monetary chaos.
The productive people, responsible people, savers, investors, the self-reliant and those not easily fooled by the central bankers and the Washington whack jobs, can protect themselves and their wealth from chaos with gold, the preferred money of the ages.