In fantasy land the central bank can always come in and resolve any financial woes. Got a mortgage problem? No problem. Can’t afford to your budget this year? No problem. Need some bank reserves that you won’t lend anyway? No problem.
We’ve become fixated with this idea over the last decade that central banks can bailout everyone and anyone. But here we are more than a decade into this experiment of bailing everyone out and how is it working? Well, the US economy is stuck in a permanent rut with almost 1 in 10 out of work. Meanwhile, across the pond the problems just won’t go away. If Europe is any measure it’s clear that all of this central bank intervention sure doesn’t work at all. Irish bond yields are blowing out to new highs today as budget woes look increasingly problematic (via FT Alphaville):
Markets are shrugging this all off in recent weeks. The Bernanke put means there will be no losers ever again. At least that’s the goal. Capitalism without losers? Socialize the losses? In the end, we all lose. Just ask the people of Ireland who have been pulled into this dreaded currency union, ceded their monetary sovereignty to a foreign central bank and now rely entirely on the kindness of strangers. All of this central bank intervention would be hilarious if it wasn’t destroying so many lives.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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