Monetary Policy Is Reaching Its Limits & Cheap Money Is A Delusion: Taxpayers Will Have To Pay The Bill Anyway

Monetary policy in the United States and other developed countries

“is reaching its limits,”

but the Federal Reserve has not yet run out of responses to a potential slowdown, former Fed Chairman Ben Bernanke wrote Friday in a blog post for the Brookings Institution, CNBC reports.

The economist argued that a

“balanced monetary-fiscal response”

would better boost the economy than monetary tools alone. According to Bernanke negative interest rates hold

“modest benefits”

but are unlikely.

Bernanke wrote the following:

I assess the probability that this tool will be used in the U.S. as quite low for the foreseeable future. Nevertheless, it would probably be worthwhile for the Fed to conduct further analysis of this option.

• The U.S. central bank this week held its target short-term interest rate range at 0.25 percent to 0.5 percent.
• The Fed indicated it could hike twice this year.

On Wednesday, Fed Chair Janet Yellen said the central bank had not “actively” discussed to introduce negative interest rates.

“What I would like to make clear is that this is not actively a subject that we are considering or discussing. The committee continues to feel that we are on a course where the economy is improving and inflation is moving back up,”

Yellen said.

According to Holger Zschäpitz, a senior editor of the financial desk and market maniac at Die Welt, global market cap has risen $1.2trn this week.

Also on Friday, WTI futures crossed back above $42 for the first time since early December. Tom Kloza from Oil Price Information Service said investors shouldn’t bank on a long-term rally for the commodity anytime soon. This week’s oil jump comes after the Federal Reserve diminished rate-hiking expectations, weakening the U.S. dollar. Kloza thinks that

Cheap money is the steroid right now for crude oil prices.

It’s worth noting that St. Louis Fed President James Bullard thinks low rates may be causing low inflation. He didn’t conclude this argument was correct, but suggested it deserved further analysis. His remarks came during a policy conference in Frankfurt.

As for the ECB policy, the so called “helicopter money”, or free cash dished out to citizens in a bid to stimulate spending and inflation, would end up costing euro zone states and therefore also cost taxpayers, the head of Germany’s central bank said in an interview with a group of regional German newspapers, Reuters reports.

Bundesbank President Jens Weidmann told German media group Funke’s newspapers that

“Helicopter money is not manna that falls from heaven – it would actually rip huge holes in central bank balance sheets,”

“Ultimately euro zone states and therefore taxpayers would end up having to bear the costs because there wouldn’t be central bank profits for a long time,”

And what are your thoughts? Please feel free to share your observations below …