Death Star Redux

The test firing of the Death Star officially known as FAFRRRF has started off around 12B a day and 1bp. T Bills for the end of the year and interbank sets have adjusted somewhat to the reality. FT picked up on the Trinity Site of future monetary policy and its possible fallout consequences today.

Long time readers of "The Corner" are familiar with our interest in Abundance Economics. In a nutshell, a social science founded on the notion of scarcity finds itself struggling in an era of "too much everything." Unlike policy bears who have thrown in with Minsky and string pushing or MMT-ers whose answer to anything is "just do more", we have been followers of Dugger and the concept of the Structural Trap. ( )

As FT explores today ( with too much Keynes in our opinion) the Death Star could become a facility that re-enforces the structural impediments to robust future growth.

Structural in the worst way to us as the "archaic and inefficient" industry being supported is the financial sector. Capacity in the sector continues to outpace demand by a wide margin. The system, reestablishing its position as a percentage of the S&P 500 and floundering under the paradox of record debt obligations and collateral shortages simultaneously, exists for the sole purpose of examining its own massive navel. The Death Star merely sprays cold water on a Structurally Trapped, over capacity, demand deprived economy Zambonied smooth by QE. Following the money, many as the zeroes may be, results in a diagram equal parts Rube Goldberg and M.C. Escher.

We return to Dugger: By preventing the needed reduction in excess capacity, a structural trap condemns reflationary policies to failure by making the creation of credible inflation expectations impossible. Faced with a structural trap, an independent central bank with a price stability mandate should adopt a monetary policy stance consistent with restructuring. If political resistance is high, monetary policy decision makers will need to keep nominal rates high enough to ensure that capital reallocation takes place at an acceptable pace.

The product that needs its capacity reduced is money.

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