It Matters

 
It takes some awhile to get it. Not a criticism just a statement of fact.

Brian Wesbury of  First Trust Advisers writes in his July 12 Morning Outlook post (second paragraph here) it's time to start ignoring central banks. Though there have been others, mostly lonely wolves, saying the same thing for some time now, Wesbury's suggestion should pique your interest.

If we had a soon-to-be-disappearing C-note for every time we have questioned what the Fed and its global cohorts in financial incompetence have been doing over the past several years, we'd popping some champagne now. But this is a serious matter. And Wesbury captures the essence of it with his blurb.

Some are spinning the July 287,000 jobs report as a "relief" to the Fed, but this only makes sense if somehow the Fed were thinking of cutting rates, but chose to ignore the weaker than expected May jobs data thinking things would get better. In other words, the Fed's indecision and wobbly-knees are creating uncertainty and an environment of fear.

We think it's time to start ignoring central banks. The pretense of global central banks the past several years is that without their decisive action, the crisis of 2008-09 would have turned into a global depression. All it took was a combination of massive quantitative easing, zero percent rates, and now negative interest rates to prop up growth.

This, we think, is nonsense. Quantitative easing just piled banks a mile high with reserves that they didn't lend. And, if QE really did create economic growth, it would have also generated higher inflation and a weaker dollar, but inflation remains low by historical standards and the dollar isn't weak.

The same goes for negative rates. Central banks have always thought lower short-term rates create more stimulus. So, what's to stop them from going the next step and believing that negative rates must be even better! What this theory misses is that negative rates are, in effect, a tax on the financial system, which is supposed to be the conveyor belt for monetary policy. That's why countries adopting negative rates haven't yet generated the economic improvement those rates are supposed to yield. Quit waiting, it's not going to happen. In fact, negative interest rates lead to slower money growth.

But, it's not central banks that create wealth, it's entrepreneurial vigor – new ideas that make consumers' lives better, and engineering improvements that are freeing the US from unstable foreign energy supplies. Government spending and regulation stifle growth, and for the most part that's been getting worse in recent years. But, guess what? In some ways, things are getting better. For example, American oil producers are exporting crude oil for the first time since the 1970s.

The Fed has never written an App. It may use the Cloud, but it didn't build it. Remember this the next time the financial press obsesses about the next move, or lack thereof, by the Fed, the European Central Bank, Bank of England, or Bank of Japan. It hardly matters at all.

We get Wesbury's point about it hardly matters at all. And in one sense he is correct. In another, however, it matters major give the damage these bureaucrats can unleash on the financial future of millions.
advisorperspectives.com/commentaries/20160712-first-trust-advisors-monday-morning-outlook.