Way out of depression

Since 2008 financial crisis gross domestic product in the US is below 2%. The extended period of time when productivity is below average is called depression. Damages did by the global recession of 2008 still hold a grip on the economy. There were high hopes associated with monetary policies introduced by the central banks. The program of buying financial assets from market participants was supposed to revive the economy. The cash that people receive for their treasuries is reinvested in equities. There is a very clear correlation between quantitative easing program and behavior of stock indices. Eventually, almost nothing trickles into the physical plane. All the money pumped by central banks stays on the financial plane. Similarly, low-interest rates were supposed to stimulate growth. However theses policies turned out to be ineffective. Central banks can’t increase interest rate because that would increase the cost of financing and put the additional burden on companies and household. They can’t lower the interest rates because we are now at zero. The negative interest rates stimulate saving and diminish spending and thus decrease growth. People are rationally expecting that they will have smaller returns on investments and they decide that they should stash away more of their income. The interest rates have been steadily declining since the early eighties. And this period was the time of unprecedented economic growth. Today, the role of interest rates a tool stimulating growth has ended. All major economic blocks are converging in the same spot. Japan is leading with its lost decades and permanent deflation.  Ray Dalio the man behind Bridgewater hedge fund predicts that soon the third monetary policy will be implemented by central bankers. Policy number three consists in giving money directly to the consumers, people who will have no problem spending it for the physical goods. Helicopter money, according to Dalio, can range from financing government deficit by central banks to wiring money to individual citizens.

V Room Journal recommends watching Ray Dalio’s video explaining the mechanism of the global economy.