The Fed’s Desperate Battle against Stagnation: A New Era Begins, by Jim Rickards. An excellent entry-level read on major upcoming strategic financial changes, by an insider.
Global elites are getting desperate to try something new to stimulate growth. … A new global consensus is emerging from elite voices such as Adair Turner, Larry Summers, Joe Biden and Christine Lagarde. The consensus is that the only solution to stagnation is expanded government spending on critical infrastructure, health care, technology, renewable energy and education. In a Republican administration, more defence spending could be added to the list.
If citizens won’t borrow and spend, the government will! It’s the basic Keynesian idea from the 1930s without the monetarist gloss.
Rickards argues that the US will reintroduce wartime measures such as capped interest rates, which fundamentally alter the currency and bond markets. In a roundabout way, the combination of government and the US central bank (the “Fed”) will be effectively printing money.
The popular name for rate caps, and Fed bond buying to support government spending, is ‘helicopter money’. The technical names are fiscal dominance and financial repression.
Inflation will emerge, and real interest rates will be negative.
Rate caps will not arrive until mid-2017 at the earliest.