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Op-ed: The perils of monetary activism

January 7, 2015
in Blog

Investors are seemingly bemused as stock markets continue to underperform in the New Year after “racking up double-digit returns for 2014.” But if the last few years have taught us anything, it’s that positive growth and optimistic forecasting doesn’t necessarily mean that all is well with the economy.

As Dr. Judy Shelton points out in her new piece in The Hill titled “The perils of monetary activism:”

The thing about a global financial crisis is that, while everyone senses in an existential way that it could be looming on the horizon, no one actually sees it coming. Investors are always astonished by a sudden meltdown that kneecaps financial markets and then whole economies.

Central bankers don’t seem to accept that monetary intervention can bring about turmoil, however, and currently the Federal Reserve, the Bank of Japan and the European Central Bank have plans to manipulate the supply of money and credit in order to improve economic performance.

As Dr. Shelton warns in her article, “divergent phases of monetary activism by the world’s central banks spawn an interest-rate gap that drives currencies in different directions” and “currency mismatches could lead to tightening credit conditions worldwide, triggering a breakdown.”

Clearly, one would expect that the financial crisis, often cited as an even worse economic meltdown than the Great Depression, would have forced central bankers to learn their lesson, but instead we continue to see “monetary activists” act with “total discretionary authority.” That’s certainly a scary thought.

To read Dr. Shelton’s article in its entirety, click here.