Central Banks' Loose Money Policies Have Produced The Tightest Financial Conditions In Years. No, Seriously

As my fellow Substack commentator Sage Hana said so accurately, “It's a mixed up, muddled up shook up world.”

Nowhere is the truth of that line from The Kinks 1970 hit “Lola” more evident than in financial markets, which, if you believe Goldman Sachs, are tight to the point of causing recession and stagflation.

As the following chart from Goldman Sachs, which compiles the most widely used financial conditions indexes, shows, financial conditions are at the tightest in two years, driven by soaring energy prices, sliding stocks and the market fallout from the Ukraine-Russia conflict. In fact, if one excludes the March 2020 chaos, the last time financial conditions were this tight, the Fed Funds rate was about to hit the past cycle high of 2.50%.

Get that? All the pandemic era “quantitative easing” and other monetary stimulus have led to the tightest financial conditions since 2019. Loose money policies have produced tight financial markets.

And Goldman Sachs is serious. They really believe that inflation is something other than a monetary phenomenon (when that's all it ever is).

No wonder the world is screwed up, when the “experts” produce irrational malarkey such as this.