Inflation: try to remain calm

“I think it is obvious that we’ve finally reached the limits of monetary policy. Does the ECB taking rates 10 basis points more negative do anything but accelerate the bankruptcy of the Eurozone banking system? Does it increase consumption or capital expenditures? Of course not. If anything, it just starves the system of capital by taking everyone’s return on capital investment down towards zero and below. Who invests when expected returns are negative? What the world needs is a big reset of the system where leveraged firms default, solvent firms pick up the pieces and get to earn excess returns due to their past fiscal sobriety. Since we live in a democracy, that won’t happen, instead we will have extreme fiscal stimulus in order to kick the can further down the road.."

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