Courtesy of Mish.
John Hussman had an interesting post this week on a The Decade of Zero and its Chaotic Unwinding.
Hussman proposes that stocks and bonds are so ridiculously priced that expected returns in every time frame shorter than 10 years is likely to be negative. He believes stocks will not be flat for 10 years, rather there will be a drawdown of 40% or more at some point.
Hussman also discussed central bank policy and whether or not there was any evidence it works. Let’s continue with the bank policy discussion.
No Evidence QE Increased Industrial Output or Reduced Unemployment
I imagine that Ben Bernanke, Mario Draghi and Haruhiko Kuroda all stay awake at night imagining ways to force negative rates on savers. But the larger question, beyond a sociopathic desire to control others in service of one’s own intellectual dogma, is why anyone would advocate such policies. I can’t emphasize strongly enough that there is no economic evidence that activist monetary intervention has materially improved economic performance in recent years.
Specifically, the trajectory of the economy in recent years has followed a largely mean-reverting course that one could have anticipated simply on the basis of lagged economic data, and there is no economically meaningful difference in the projected trajectories of GDP, industrial production, and employment using purely non-monetary variables, compared with projections that include measures of recent extraordinary monetary policy.
Even allowing for a negative “shadow” Federal Funds rate, as Wu and Xia have done, results in the conclusion that extraordinary monetary policy boosted U.S. industrial production by less than 1%, and lowered the unemployment rate by just over one-tenth of 1% beyond what would have been expected from conventional monetary policy (as defined by the Taylor Rule).
Damn the Lack of Evidence, Full QE Ahead
Yesterday I wrote Spirit of Abenomics: Bold New Plan in September?
Etsuro Honda, an advisor to Japanese prime minister Shinzo Abe made this statement: The effects of quantitative easing may be diminishing compared with a few years ago, but “what we should say is, ‘Effects are diminishing, so let’s do more.’ This is the spirit of Abenomics.”
Spirit of Abenomics
Honda said that it was odds on that Abe would start a “bold new plan” in September.
