Catch - 22
January 12, 2015·0 comments·monetary policy
Financial markets have entered a strange new phase where the actual effects of monetary policy matter far less than belief in central bank control. The policies everyone prays for would barely move the economy if implemented, yet without the performance of these prayers, confidence collapses. The system is stable only because everyone agrees to participate in the ritual, regardless of whether it solves anything.
• Markets are no longer asking whether central bank bond-buying will actually help the economy. They're asking whether the central banks will perform the ritual at all. The actual economic impact is almost beside the point.
• The media created a deflation crisis by counting only food and energy prices. Core inflation was already rising, but the narrative existed because markets needed something to pray about, not because the threat was real.
• Every structural reform and real fiscal fix is gridlocked because monetary policy keeps the system just functional enough. Central banks prevent the economic pain that might actually force necessary changes.
• This creates a self-reinforcing trap where each disappointment demands louder prayers for the next announcement. The ritual can only be sustained by escalation, each time asking the gods to do more than they did before.
• The system works perfectly as long as everyone keeps believing in it. But there's a difference between a cult's stability and its fragility. When gods stop delivering what their followers expect, the entire edifice can shatter very quickly.
Subscribe Today to Read More
Unlock instant access to this and hundreds of other evergreen essays that explore the world of narrative through hard science and human wisdom.
- Make more informed decisions as an investor and citizen.
- See through the nudges of Big Politics and Big Media.
- Become a better consumer of news.
- Maintain your autonomy of mind in a swarm of narratives.
- Join a community of more than 100,000 truth-seekers.
Looking for Deeper Insights?
Unlock exclusive market intelligence, trade ideas, and member-only events tailored for investment professionals and active investors with Perscient Pro.
VISIT PRO
DISCLOSURES
This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.
Comments
Start the discussion at the Epsilon Theory Forum...