Done that? OK, now I want you to replay that same movie but only in reverse, and in slow motion, with interest rates being cut to negative, with market rates determined by the public sector, with the loss of CB independence, with quantitative expansions of the money supply
With less and less risk taking and lower rates of prosperity, less technology breakthroughs, less free markets and more government-set prices. An economy where everyone is on the payroll of the State.
It’s a dirty business but who ya gonna call? If it’s HughHendryOfficial then Step III will see us quietly, and without pomp or ceremony, reintroduce central bank Window Guidance whereby commercial banks will be given a quota for their loan book and a targeted growth rate.
The Princes of the Yen describes this technique well. The political imperative in Japan in the late 1980s was to stoke a domestic boom to deflect international pressure from the US regarding the Japanese trade surplus.
Japan’s commercial banks grew their risk assets by 15pc pa between 1986 and 1989 and everything boomed.
Normally the circuit breaker is you and me. It’s we who work out the unsustainable nature of a fiat directed bank loan expansion. It is we who see the tower of riskier and riskier loans and its power to generate reflexively even riskier loans and huge unproductive investment.
Because, You & Me, we see things differently. It is us who head to the exit first and that’s why it’s You & Me who are going to live forever!
Sorry, I digress, where were we? The ensuing currency crisis. It usually puts a brake on the expansion. However, Japan, with a capital account of more than $200bn, rivalling the firepower of the IMF at the time, had no currency crisis; you want to pick a fight with a monster?
That pales into insignificance versus the Spanish or Irish bank booms +20pc
