Axel Merk: Failure of Inflation Targeting?!

Axel MerkAxel Merk, Merk Investments, Released on 9/8/16

It ain’t working. Eight years after the outbreak of the financial crisis, central bank chiefs suggest they have saved the world, but have they? We argue central banks have become part of the problem, not the solution. At its core, their indoctrinated focus on inflation may well do more harm than good, with potentially perilous implications for investors.

Justification of Monetary Policy
Most central banks have a mandate to promote price stability; the Fed is said to have a dual mandate to also maximize employment. Over the decades, we believe most economists have come to believe pursuing an inflation target is the holy grail of modern central banking. As such, it’s not a surprise that by arguing inflation is too low, central bankers have justified the pursuit of their various policies since the onset of the financial crisis. Some prominent central bankers, including European Central Bank (ECB) head Draghi, have argued the law requires them to pursue an inflation target, thus pursue potentially ever greater monetary easing; and that if there are unintended consequences, ‘macro-prudential’ measures ought to be employed by policy makers to address those (as an example, the argument is central to this speech by Draghi last February). Our interpretation: Draghi sees his role as doing whatever it takes, and don’t blame him if there are unintended consequences. While Draghi may be more radical in some of the tools he employs, we consider his “leadership” as a symptom of the environment we are in.

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Axel Merk is the Founder, President, Portfolio Manager, and CIO at Merk Investments LLC. He is an expert on qualitative research and macroeconomic trends. Mr. Merk is also an expert on macro trends, hard money, international investing, and on building sustainable wealth, and he is a pioneer in the use of strategic currency investing to seek diversification. He is a speaker and author on topics ranging from the economy, gold, and currencies to sustainable wealth and personal finance, as well as a regular guest and contributor to the business media around the world. Mr. Merk is an Author of the book Sustainable Wealth: Achieve Financial Security in a Volatile World of Debt and Consumption.

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