More QE is on the way – The central banks are digging themselves a deeper hole

Last month we entered the sixth year of this crisis, although parts of the media seem determined to continue calling it a ‘recovery’. Wishful thinking. We have been in continuous crisis for half a decade. Doses of Valium and Prozac – called QE among central bankers – have calmed nerves occasionally and given the false impression of healing.

QE – and zero interest rates – is the policy equivalent of crack cocaine. It makes addictive. There is no end to it.

That QE3 would ultimately come was clear from the moment that QE2 had been concluded. It was only a matter of time. For what it is worth, my guess is the Fed will have to do more than the lame $600 billion they did last time. And at some point they will have to also stop paying interest on the massive excess reserves at the Fed to push more money into the economy.

The idea that all this monetary madness is only temporary, only to help us get out of the crisis, and that the central banks have an ‘exit strategy’ – a term that I have not heard or seen in any discussion of central bank policy since spring of 2011! – is getting less tenable by the day. There is no exit strategy. Not in the US, not in the UK, not in the Euro Zone.

One day a sufficiently large section of the public will realize that the central bank and the government have no alternative to printing ever more money and taking on ever more debt. The only way they know of how to ‘stimulate’ the economy is via cheapening credit and encouraging more lending and borrowing. At some point, confidence will evaporate, people will disengage from bonds and paper money, inflation will rise (as money becomes a hot potato) and real interest rates rise even faster (as bonds become hot potatoes, too). Nobody knows when that will be.

The goal seems to be to make the endgame as catastrophic as possible

Mr. Schlichter had a 19-year career in investment management. He worked at J.P. Morgan & Co. (1990-1998), Merrill Lynch Investment Managers (1998-2001) and Western Asset Management Co. (2001-2009). During his career Mr. Schlichter has overseen billions in assets under management for institutional clients from around the world. He left the industry in 2009 to focus exclusively on his first book, Paper Money Collapse

"We do not want another committee, we have too many already. What we want is a man of sufficient stature to hold the allegiance of all the people and to lift us up out of the economic morass into which we are sinking. Send us such a man, and whether he be God or devil, we will receive him." 

1. People with loads of money in the bank?

2. People with no money in the bank and no debts?

3. People with no money in the bank, but plenty of debts (mortgage, loans etc)

For example, if I was in the happy situation of having £150k in various banks, I'd be very worried about whether it was safe and whether its value was protected.

On the other hand, if I owed banks £150k, I'd be very worried about looming high interest rates.