When one looks across markets and reflects on the actions of the world’s central banks since 2008, it’s easy to get confused.
That is, how could it possibly have come to this?
In polite circles and certainly in the mainstream media echo chamber, Ben Bernanke’s deployment of unconventional monetary policy in the wake of the crisis is credited with pulling the world back from the edge of a veritable financial apocalypse and if that’s true, then the proliferation of these world-saving monetary measures should by all rights have brought about a dramatic global economic recovery.
Only that didn’t happen.
Instead, we stand once again at the precipice of crisis and central banks are out of ammunition and, perhaps more importantly, completely out of credibility. Indeed, the fact that we are facing a new Asian Financial Crisis, emerging market mayhem, harrowing bouts of volatility accompanied by ever more frequent flash crashes across asset classes seems to prove that far from "smoothing out" the business cycle, Keynesianism gone wild in fact does the exact opposite: it creates the conditions for still greater booms and busts and thereby serves to destabilize markets.
In light of the above, we present the following flowchart from BNP which should serve as a helpful roadmap for those wondering how we just went from one major crisis to another in the space of seven years and all we have to show for it is more debt and trillions in printing press money that did next to nothing to boost aggregate demand.