Much of the supposedly godlike power of central banks is participants’ faith in their powers to control not just finance but the real world that can be leveraged by finance.
The Grand Narrative of the global economy since the 2008 financial meltdown has been: whatever the problem, zero interest rates and more credit will fix it. Too much debt? Zero-interest rates and more credit will fix that. Government spending far exceeds tax revenues? Zero-interest rates and more credit will fix that. Economy sluggish? Zero-interest rates and more credit will fix that. Few jobs being created? Zero-interest rates and more credit will fix that.
Had a bad hair day? Zero-interest rates and more credit will fix it.
Implicit in this narrative is the notion that there are no hard limits on credit or central bank money creation. If creating $1 trillion in new credit-money and pushing it into the hands of financiers doesn’t do the trick, then push $2 trillion more.
Equally implicit is the assumption that the central banks repressing interest rates and creating trillions of dollars out of thin air can control any blowback or unintended consequences triggered by the free money for financiers tsunami. The central banks implicitly claim to be Masters of Universe: not only are there no hard limits on zero interest rates or nearly unlimited monetary heroin, there are also no limits on the power of the Federal Reserve and other central banks to bend markets and behaviors to their will.
These implicit assumptions have fostered a quasi-religious belief in the unlimited powers of the central banks and the freshly created credit they issue.
In other words: there are no hard limits on central banks or credit creation. If central banks want to keep interest rates at near-zero, they can do so with no limit. If they want to push the stock market higher they can do so with no limit.
I have discussed what I see as intrinsic limits on manipulating markets in Are There No Hard Limits on Financial Finagling? and Have We Forgotten What an Authentic Market Is?
