For several decades, the historical data show that the monetary policy of central banks has been to use debt to stimulate the global economy, constrained only by the possible emergence of high inflation. This post shows that the policy has been economically destructive for US economic growth and, with more audacious pursuit of such a monetary policy recently, the risk of a Keynesian economic collapse has increased substantially (Sy, 2014).
A few decades of US monetary stimulus has led to zero or negative interest rates and the accumulation of a mountain of debt, which economists confuse with money and consider as innocuous, because “debt is money we owe to ourselves” (Krugman, 2015) or “one person’s debt is another person’s asset” (Fatas, 2015). Of course, debt is harmless provided it does not lead to bad loans or credit defaults, which are assumed negligible and ignored in standard economic theories taught at universities. The reality is very different.