Mervyn King who led the European Central Bank has written a new book: Th End of Alchemy.  In it, he discusses the apparent stagnation in developed economies worldwide.  He attributes this in part to the low-interest rate policies of the central bank, which bring purchases from the future into the present.  That is, if you plan to buy a big ticket item, why not buy it when interest rates are low.

King observes that every time you do this, you bring more future purchases to the present and begin to dig a big hole in the future. King writes: Monetary stimulus via low interest rates works largely by giving incentives to bring forward spending from the future to the present. But this is a short-term effect. After a time, tomorrow becomes today. Then we have to repeat the exercise and bring forward spending from the new tomorrow to the new today. As time passes, we will be digging larger and larger holes in future demand. The result is a self-reinforcing path of weak growth in the economy.”

While the math to such a suggestion has not been worked out, it is a provocative one in the face of current economic conditions.

King has a three-pronged approach the future planning:  irst, economic reforms to boost productivity, which he hopes will change that depressing narrative by which consumers determine their behavior. Second, trade liberalization, mainly in services (such as insurance, consulting, data analysis, and so on), since trade in goods is already quite free. Third, restoring exchange rate flexibility, which basically seems to mean ending the euro.  While ending the euro is a startling idea, the first two policies have been advocated by the IMF for sixty years.