Paul Singer Warns “The Consequences Of Monetary Manipulation Are Unknowable”
The world believes it is in a sweet spot. There is global consensus that central banks know what they are doing and are in control, and that if economies falter, a bigger dose of QE or ZIRP or NIRP (negative interest rate policy – we just made that one up) will keep it from getting out of hand. Additionally, there seems to be a universally held belief that the U.S. is unquestionably the safe haven for the foreseeable future, that its financial crisis and long recession are behind it and that China has complete control over its own destiny. It may not surprise you to learn that we either disagree with or remain unconvinced about every one of the foregoing propositions.
Conditions in the global economy are clearly abnormal. The policymaker response to those conditions is extraordinary, with minimal focus on an all-out push for higher growth. Instead, the primary focus is on boosting “inflation” with repeated doses of bondbuying, stock-buying and super-low interest rates. We cannot appreciate why policymakers are not jumping up and down clamoring for structural pro-growth reforms and policies, and why there is a compliant consensus that the only policy that is possible is more monetary easing. Apparently, most politicians are happy to leave the hard economic and policy decisions to their central banks instead of introducing legislation to properly address the world’s economic problems. It is impossible to assess what will change or destroy the consensus that current policies will hold the global economy and financial system afloat forever, but when assessing the scope and shape of risks to our assets, it is most useful to match them to the size of the aberrations which could cause reversal or surprise. Today, those potential changes are strikingly large.
We have frequently said that real deflation (price and credit collapse, not a tiny downturn in aggregate prices or “insufficient” inflation) is impossible. Governments are too alert to that possibility, have no compunction about debasing their currencies and will simply not stand for seriously-falling prices. The issue of real inflation, at the other end of the spectrum, is deemed by just about everyone but us, plus a few beleaguered stragglers and fellow travelers who “didn’t get the memo,” to be a non-issue into the future as far as one can peer.
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