What is clear is that the Fed and fellow central banks can do precious little to reverse a chronic decline in productivity. In this respect, we have reached the limits of central bank action.
Fed chief Janet Yellen is in a horrible predicament. She can keep running the economy 'hot' - and by her own admission real rates are 1.25pc below their 'neutral' or Wicksellian level - in a bid to build up momentum.
But in doing this she risks falling behind the curve on inflation, or more accurately 'stagflation', since that is where the US seems headed. She can pick her poison from one side or the other of the 1970s Phillips Curve - jobs or prices - but pick she must. “The longer the Fed dithers, the higher rates are eventually going,” said Paul Ashworth from Capital Economics.
Yellen has a revolt on her hands in any case. The heads of the Atlanta, St Louis, and San Francisco Feds have all been talking up the inflation threat. Even the ultra-dovish Boston chief has gently cautioned markets to expect more than the one solitary rate rise priced in by futures contracts for this year.
The Fed may succeed in stretching this cycle until 2017. But sooner or later it will have to grasp the nettle, and then we will discover how much monetary pain can be taken by a dollarized global economy with post-QE pathologies and total debt ratios some 36pc of GDP higher than in 2008...
There has been a lot of talk about stagflation recently. It seems like it may indeed be coming.
The scariest statement here is the remark by Paul Ashworth: "The longer the Fed dithers, the higher rates are eventually going."
And dithering they have been for years now.
For a slightly different perspective, emphasizing the current global deflationary situation and competitive currency devaluations (but equally critical of the role of central banks), note the latest – very bearish – views of Bob Janjuah of Nomura.
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