I recently came across a piece from last year by Claudio Borio, the Head of the Monetary and Economic Department at the BIS, regarding the potential missteps central banks could make in the years ahead.

Now, as many of you know, I am not a fan of centrally planned price setting, least of all when it comes to money itself. I would prefer to see the whole system dismantled in favour of fairness and resilience. However, this article is significant because it represents a view from the very top of the global financial system that essentially acknowledges the engine of growth narrative is a lie.

Borio argues that a dangerous "expectations gap" has developed between what monetary policy can actually deliver and what the public expects it to deliver. He admits explicitly that central banks cannot fine-tune the economy within narrow ranges, nor can they be relied upon as a de facto engine of growth.

Amen to that!

Perhaps most interestingly for those of us sceptical of the current orthodoxy, he suggests that policymakers need to abandon the "deflation bogeyman." He argues there is no systematic link between falling price levels and weak economic activity (the Great Depression is usually seen as the 'proof' of the opposite, but Borio calls this an exception rather than the rule. I'd say it mistakes correlation with causation.. but that's a whole other topic) and that the fear of crossing this red line often leads to interest rates being kept too low for too long, fueling financial instability.

RBA watchers will note just how much this view is at odds with recent decisions from Martin Place, where the attempt to fine-tune a soft landing continues despite sticky service inflation. Borio warns that the media and financial industry "razzmatazz" surrounding policy decisions suggests we have lost all sense of realism. He identifies the unsustainability of fiscal trajectories as the single biggest threat to stability, noting that if fiscal policy is out of kilter, there are hard limits to what monetary policy can achieve.

You may have heard the term "fiscal dominance" recently, which refers to the same thing. And it's why structural budget deficits and the way those deficits are directed are FAR more important than what the official rate of interest is, especially when debt levels are so high.

"End the Fed" (or make the RBA go away) might be the optimal solution, but it is not happening anytime soon. So, if we are going to have a regime that manipulates credit pricing and monetary quantities, we should at least adhere to the "sustainable" approach Borio outlines. In essence, they need to stop trying to be the hero. Borio concludes that the objective should be "hardwiring" a low-inflation regime where price changes don't materially influence behavior, rather than chasing short-term growth targets. He calls for smaller, riskless balance sheets and a rejection of specific forward guidance that simply encourages reckless risk-taking by the market. If they can't leave us alone, the least they can do is stop pretending they can micro-manage the economy.

This is all super interesting (well, I think so anyway haha) but what when it comes to investing what matters is what is likely, not what *should* happen. And politics being what it is, I can't see the tough but necessary decisions being made anytime soon. And the reality is that the pollies love to have a bogey man in the RBA they can point to rather than people focusing too much on what they are doing in terms of borrowing and spending., and how that impacts livelihoods.

All of which is to say, my big macro call remains unchanged. Specifically, while we can't ever hope to know the specifics or the timing, we are inevitably headed towards a world of accelerated money printing and currency debasement. Something the price of gold seems to be signalling loud and clear!

Basically, own quality/hard assets even if at somewhat heightened valuations. They are a far better bet than cash and bonds for long term investors. Moderate and easily serviceable debt is also probably a good thing imo, given likely inflationary dynamics.