In an effort to push money out into the economy for loans and economic activities, the ECB has moved to drastic measures, negative interest rates. Once again the anointed “central planners” get this wrong.

Drastic indeed.  Confiscatory monetary policies to take from some to ensure the bets of others.  No longer a “free market” but a centrally planned affair.  As in all central planning, some are chosen to benefit, others to be harmed.

The monies to be theoretically pushed out of deposits will likely continue to find their way to speculative endeavors. The velocity of money, or the rate that money “turns over” in the economy, will continue to plummet.  The second law of Newton is in full play here.  For every Central Bank “action” there will be, and continue to be, an “equal and opposite reaction."  String pushing is the favorite sport of the central planners, and they continue to expect different results from the same actions.

Disposable income will be stripped from savers to prop up the markets.  The prudent will support the reckless.  The ECB and other central banks will “guarantee” these programs with promises of ample forewarning of any policy change.  The forewarning phone calls will likely be dispensed in an uneven fashion.  You certainly want to be at the top of that phone tree.  Meanwhile, ride those equity markets, don’t save or get caught with idle funds.  Isnt this how the entire mess first began?

The Central Planners now seem deathly afraid of a “free market."  They must arrange the entire affair.  They know that they “know” better than the thousands and thousands of free market decisions makers.  Economic balance is now temporarily suspended.  The eventual return to “balance” will be dramatic, and that drama will be set to a degree proportional to exactly how far central planners have pushed us from the “free market balance” in the economy.  The beach ball cannot last long beneath the water.

James Longstreet