Friday, August 22, 2014

Forbes Article: Hotel California

Hotel California

Original article on Forbes Espanol:
By Ethan Michaly
Although the Federal Reserve is near the end of its latest round of flooding the market with money (more elegantly called QE, but plainly speaking printing green paper; which has hypothecated future generations of the country by an un-payable debt for decades, achieved a miserable growth since 2009, generated the worst income distribution in modern times, managed an increase in employment but at much lower salaries, inflated the largest credit bubble in history, created an equity market madness in which a very low percentage of the population is involved but still doubles, triples and quadruples in value), it is unlikely that they can afford to discontinue that policy for long. In fact, rather than start raising interest rates soon, it is much more likely to develop a new system for printing in months. If the American economy is growing at below 2% due to printing, imagine what would happen without it.
For decades Japan has been in QE and Mr. Abe decided to make a pop artist career by a creative mega-print campaign that had such a lasting effect as a 100-meter dash; Japan's economy has returned to negative territory and so-called "three arrows" of his plan will soon be replaced by the entire storage of Robin Hood's arrows. In summary, they can't and will not stop printing.
Europe, which had resisted the temptation of this sweet drug for a while, through austerity measures that have resulted in a relapse into recession and the bursting of another island and financial institution, finally is ready to embark on this wonderful journey of dropping money to the streets from a helicopter (famously mentioned by Mr. Bernanke prior to his inauguration as head of the Federal Reserve US).
This experimental path that has been taken and so praised for avoiding a larger catastrophe since 2009, which has generated a ridiculous amount of money globally, lacks any kind of exit strategy. Even by admission of Nobel Prize economists: what we do not know is how to reduce the amount of paper and go back to something more reasonable. The Fed is experimenting with these gradual reductions but I have bad news: like the lyrics of the famously acclaimed Eagles song:

Welcome to the Hotel California
Such a lovely place 
Such a lovely face
Plenty of room at the Hotel California
Any time of year 
You can find it here


Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
"Relax, " said the night man,
"We are programmed to receive.
You can check-out any time you like,
But you can never leave!