No One Knows How Monetary Policy Works?

Public borrowing at low rates proved to be an effective way of putting a floor under the Great Recession. The U.S. and Japan did more of it than Europe, where there’s no central authority able to tap credit markets and spend on the continent’s behalf -- and they’ve had better recoveries. 

The problem for policy makers is that what once looked like a short-term crisis stopgap has in fact stretched out for years -- making it increasingly likely that the next downturn will arrive with interest rates still low.

The Nattering One muses... a stopgap that has stretched out for years, and when the next "downturn" arrives, rates will still be low?  Unfortunately, persistently low rates and a stop gap stretching out for years are not indicative of any recovery.  

Looks like the stopgap of "public borrowing" has put a less than firm floor under nothing, viz a house of cards, making the above quoted paragraphs completely contradictory.   But it gets better, as it always does....

The worst recessions to hit developed countries lately (and some emerging markets too) have followed rapid buildups in private credit -- one reason why central banks have found it hard to inject stimulus. 

Richard Koo, chief economist at Nomura Research Institute, coined a term for it: balance-sheet recession. And today, years into the recovery, households and businesses are still highly indebted by past standards.  Unlike governments, they haven’t been eager to borrow more money, however cheap it is.  - Bloomberg Economics

Years into a supposed recovery, households and businesses are still highly indebted? A recovery with low unemployment or tight slack would mean increasing wages to pay down the debt, and healthy wage inflation.  Despite the MSM spin au contraire, and they have NOT been eager to borrow more?

Did someone miss the last decade?  Alex, what is record stock buybacks (many leveraged), credit card, student, auto and near record mortgage debt?  A burden, trap and the sharecropper societies legacy?  Following up on this ball of contradictions...

In 2017 and 2018 one couldn't get away from the three MSM cheers of robust global synchronized growth, labor shortages and wage based inflation hysteria.  For those who eschewed the economist kool-aid and MSM parrot food buffet, said event induced surge promised to be transitory at best.  

Today, with all three cheers debunked, the flimsy to start with non durable economy getting busted, and beginning to roll over and play dead, this retrospect... 

“The cyclical upswing that took hold of the global economy in mid-2017 was never going to last. Even so, the extent of the slowdown since late last year has surprised many economists, including us....  The global economy’s sharp loss of speed through 2018 has left the pace of expansion the weakest since the global financial crisis a decade ago."  - according to Bloomberg Economics.

As witnessed by our Nattering, said slowdown is no surprise in these parts.  And considering the source, proof that the title of the previously quoted article wrought with contradictions "The Era of Cheap Money Shows No One Knows How Monetary Policy Works" is indeed apropos.  Said title could easily be Harry Potter and The Endless Crock of Contradictions. But don't take our word for it...

You know things have really changed when Economists start revising their statements more than the data. What’s going on in the global economy has quickly reached a critical stage. This represents a big shift in expectations, a really big one, especially in the mainstream where the words “strong” and “boom” couldn’t have been used any more than they were. If you read nothing other than Bloomberg, it’s as if some alien force has descended upon the world and completely spun it around the other way. - Jeffrey P. Snider

Since supposedly "no one knows" just what do we know? As always, what we know is little, and what we do not know immense.  But we do know this... 

No One Knows How Monetary Policy Works? In this case many central bankers, generic economists, macro pundits, the general public and particularly, all those who partake in the economic kool-aid and MSM parrot food buffet.

As practiced with wizardly misguided focus based in false doctrine, incantations to "anchor expectations", and misdirection through sleight of hand in econometric falsity (GIGO), the resultant "surprises", inexplicable "conundrums" and abrupt reversals of "perceived narrative", the "ship of fools" keep proving they know not what they are doing. 

Bottom line, monetary policy as currently administered by Central Bankers viz. attempts to control monetary stocks and flows, much less an entire economy through the cost of loan funds have been proven a fool's errand.

The simple answer is, "no one knows" because as practiced it can't, doesn't and never would or could work to start with.