by Steve Saville, The Speculative Investor
In a recent letter John Mauldin worries that central banks are ‘out of bullets’, but this is not something that any rational person should be worried about. Instead, they should be worried about the opposite.
The conventional view is that with interest rates at all-time lows and with vast amounts of debt having already been monetised, if a recession were to occur in the not-too-distant future there would be nothing that the central banks could do to ameliorate it. However, this view is based on the false premise that central banks can smooth-out the business cycle by easing monetary policy at the appropriate time. The truth is that by distorting interest rates, central banks get in the way of economic progress and cause recessions to be more severe than would otherwise be the case.