In today’s world, we’re faced with a myriad of bewildering ideas and trends. The once reliable concepts seem to have vanished, making room for a plethora of bewildering claims. Amidst this chaos, we often encounter bizarre dietary advice that raises eyebrows.
Take, for instance, the recent claims suggesting that heaping servings of bacon could be beneficial to our health. Just this week, we stumbled upon an article advocating for a scoop of butter in our morning coffee to kickstart a healthy breakfast. The theory posits that this greasy addition can curb lunchtime hunger.
Really? Perhaps these ideas suit those aiming for heart health issues; we’ll prefer our black coffee and granola bar, thank you very much.
When it comes to finance, however, the nonsense escalates even further. In this realm, people promote the outlandish idea that spending money—particularly borrowed funds—will lead to wealth. Just as perplexing are claims from esteemed figures asserting that a devastating hurricane can boost the economy.
It’s evident that building genuine wealth requires saving and investing—certainly not mindless borrowing and spending. Redirecting capital from productive uses to replace hurricane damage is a colossal waste. But what can we really expect?
Enlightened Economic Thought
Today, many policymakers globally seem convinced that devaluing their currency will magically enrich their citizens. This misguided notion is being touted as enlightened economic thought.
For example, the Bank of Japan has recently reiterated its commitment to its currency devaluation strategy. By intentionally lowering the yen’s value, they aim to decrease export prices. The Japanese central bank is currently printing an astonishing 80 trillion yen—equating to $675 trillion—annually to achieve this goal.
This strategy, however, brings about undesirable consequences. For one, a devalued currency results in pricier imports, a critical issue for Japan, which relies on foreign nations for 96 percent of its energy resources.
Although the situation may seem manageable due to last year’s significant drop in oil prices, the combination of plummeting oil costs and aggressive money printing only yielded a mere 1 percent increase in industrial production in December.
Nonetheless, the Japanese monetary authorities remain undeterred. As economist Daiju Aoki from UBS Securities noted, “The Bank of Japan is less likely to ease policy in the near term. If it were to ease further, this would offset wage growth and offer no short-term benefits.”
The Sickness that Never Ends
Things in the United States aren’t much better. After more than six years of a zero-interest-rate policy, the Federal Reserve still clings to its strategy of distorting financial markets. We may be resigned to living in a surreal environment until a significant crisis arises.
Historically, with the exception of Japan, zero-interest-rate policies had never been implemented in developed nations prior to 2008. Even the renowned Alan Greenspan hesitated to adopt such measures. It required Ben Bernanke, with his radical academic views, to pursue this uncharted path.
Since Janet Yellen took the helm at the Federal Reserve, there has been an intention to gradually increase interest rates mid-year. Yet this carefully devised plan appears to be unraveling. The Fed seems to be losing its determination. Minutes from the Federal Reserve’s January 27-28 meeting revealed:
“Federal Reserve policymakers expressed growing concerns last month about low inflation and indicated they were inclined to maintain interest rates near zero for a longer period to prevent disrupting the recovery,” reported USA Today.
“Fed officials provided no clear indication of when they plan to initiate the first rate hike since the 2008 financial crisis. They expressed greater concern over the risks of raising rates sooner rather than later.”
Can you see the absurdity of it all? These monetary policies defy logic and reason. Pressuring millions to continue borrowing and spending, despite already staggering debts, exemplifies a never-ending cycle of dysfunction.
In contrast, saving and investing are the pillars of capital formation and wealth generation. Supporting policies that encourage these sound practices is wise; everything else amounts to mere nonsense.
Sincerely,
MN Gordon
for Economic Prism
