The end of monetary tricks

We humans adapt very quickly to new developments that quickly become our “norm”.  Before the debt bubble of 2001-2007 billowed and burst, ‘normal’ overnight policy rates in Europe and North America were in the 5 to 6% range, houses and cars required down payments and mortgage and car loans required blended payments of principle and interest in the 5 to 8% range.  As we wait for the latest ECB press conference this morning, with many talking heads from finance insisting that the Central Banks and particularly the ECB have not been accommodative enough and should quickly do moar, moar, moar to ease credit and force demand, we offer the following summary of  present facts:

“The European Central Bank held its key interest rates at record lows Thursday amid media reports of dissent over President Mario Draghi’s leadership and communication style.

The euro zone’s benchmark lending rate will remain at 0.05 percent, while its deposit rate will stay at negative 0.20 percent—effectively charging lenders for holding deposits with the central bank.”  See:  ECB leaves key rates unchanged

With interest rates near zero and negative now in most of the developed world today. With consumer credit at zero down, zero interest and even deferred payments for years and years and years. Surely we have come to the end of belief in the power of monetary tricks? Time to admit facts? Time for some sanity… Anyone??

Apparently many previous leaders (who helped drive the world into the financial crisis) are now seeing the end of the add debt and stir era. See: Reform of world financial order needs strategic thinking, experts.

“The global economy and global finance is at the turning point in a way,” Jean-Claude Trichet, former president of the European Central Bank, told attendees at International Financial Forum (IFF), a Beijing-based think tank, which concluded its three-day 2014 annual meeting last weekend.

“The world has gone through the global financial crisis … new rules have been discussed not only inside the advanced economies, but with all emerging economies, including the most important emerging economies, namely, China.” Trichet said.

Many experts agreed with Trichet and said that China, the world’s second-largest economy, is playing a more crucial role in reshaping the world financial order, which was criticized by emerging economies and developing countries as unable to reflect the rapidly changing world economic reality.

Former Australian Prime Minister Kevin Rudd, also a co-chairman of the IFF, echoed Trichet’s observation, saying that the current global economy and finance is facing complicated challenges, which need wisdom to deal with.

Wisdom like allowing people to pay off their debt and rebuild cash savings; like allowing bad businesses to go bust, financial criminals to be ousted; financial conglomerates to be broken up and severed from access to taxpayer bailouts; like allowing bear markets to correct over-valued asset prices; like letting the age old business cycle run its cleansing course.

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