Commentary
Quantitative easing was designed as a tool to provide time for governments to implement structural reforms, boost growth, and strengthen the economy. However, it has become a tool to increase the size of government and take on increasingly riskier levels of debt.
The U.S. economy hasn’t strengthened in the period of enormous fiscal and monetary stimuli, as the latest data shows. It needs increasing units of debt to generate a new unit of GDP, productivity is extremely poor, and leading indicators are negative.
The main problem of loose monetary policy is that it massively increases the size of government on the way in, through debt and deficit spending monetization, but it also expands government on the way out as rate hikes and liquidity constraints impact households and small businesses but deficit spending and rising public debt remain. This “tightening” period is particularly negative in this crowding-out effect, because the government is every week presenting new spending packages while the Fed is trying to contain inflation, curbing demand growth. The public sector is unaffected by the normalization of monetary policy, but the private productive sector suffers the crunch….