Land mines on the road to ZIRP

This comment was made at Macrobusiness  (link may be locked – but there is a free trial available)

Excellent.

However, the final reel of this movie is much more exciting than you suggest.

Keep in mind that the point of these interest rates cuts by Central Banks is not about another platoon of export industry factory workers heading off to the currency wars.

It is about maintaining the demand for debt by cutting its price.

When the demand for cheap bargain bin debt collapses, and by that I mean the only chumps still borrowing are the shiny suits in FIRE, we will have collapsing demand and ZIRP.

The shiny suit use of debt is an extremely inefficient way of driving demand – already the wealth effect elf is not answering the door bell before midday.

Rather than a gradually heating billy the last phase of this process will arrive with an “OUCH” and a lot of “No one could have seen this coming.

At that point we will hear an awful lot about QE for the People – and if we don’t (because Joe Hockey and the Neo-lib jet set are still setting the agenda) we will get a bell ringing debt deflation depression.

Without taking control of the banks pro cyclical power to endogenously create money – inflation will be the result of QE for People with a banking lending super charger bolted on the top.

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