Tout est pour le mieux dans le meilleur des mondes possibles. [All is for the best in the best of all possible worlds.] Voltaire, Candide

In the novella, Candide, the cockeyed optimist, Dr. Pangloss, attempts to imbue his young mentee with Pangloss’s own incurable optimism. Candide does his best to remain hopeful, but as he travels through the world and experiences one catastrophe after another, Candide becomes painfully disillusioned.

The book was intended as an amusing criticism of Leibniz’s theodicy, that is, his attempt to affirm the existence of God despite the abundant evidence of evil in the world.

In the spirit of Panglossian cheerfulness, then, let us look around the world and see what we see. What I see is that, while the world’s economies aren’t exactly booming, neither are they exactly busting.

Japan and Europe are flat, of course, while the US is growing slowly. China is slowing, but that’s inevitable – as economies get larger and larger, their rates of growth inevitably taper off. Elsewhere in the developing world growth is decent, though not robust except in India. As always, there are self-inflicted disasters: Cuba, Venezuela, Argentina, etc.

But what we mainly observe is extraordinary prosperity. The US stock market is near its all-time high. Real estate prices in the world’s major cities are off the charts. In fact, in many of those cities middle class people can no longer afford the rent and have to live many miles away and endure long commutes.

Unemployment is at levels not seen since the 1950s – most businesses simply can’t hire enough workers. In the US today, if you don’t have a job it’s probably because you don’t want one.

If bankers are busy, something is wrong. Walter Bagehot

Bagehot was talking about ordinary bankers, not central bankers. I.e., the kind of banker who goes long short money and short long money. That is, they take in short-term deposits, which could go away at any time, and make loans to people who don’t have to pay them back for many years.

During ordinarily good times – like the present – bankers go lazily about their business, soliciting deposits and making loans. But if bankers are very busy, something, as Bagehot noted, is wrong.

What might be wrong is that the economy is booming and everyone wants to borrow money and bankers are frantically pushing out (mostly lousy) loans. Like someone suffering from bipolar syndrome, the bankers are heading for a crash when the economy turns down and those loans can’t be repaid.

The other thing that could be wrong is that poor economic times have arrived and bankers are frantically dealing with defaulted loans and staring worriedly at their balance sheets, calculating when their banks will be insolvent.

Better to live in ordinary times, like now. In fact, if you look at the long course of human history, you could do a lot worse than choose to be alive in the first few decades of the twenty-first century.

But if you agree with any of this, it can only be because you’re not a central banker. Bankers at the Fed, the ECB, and the BOJ (Bank of Japan) – hereinafter to be known, thanks to their prevailing Groupthink, as Fedecbboj – are busy as hell. Why? Because they look at all the good news across the globe and they see the worst of all possible worlds. Disaster! Catastrophe! Only we, the intellectual giants at Fedecbboj, can save this hopelessly oblivious world from the Impending Global Train Wreck!

In short, despite the generally happy state of affairs in the world, Fedecbboj is pursuing the most radical, most preposterously stimulative policies in the entire history of human civilization. You think I’m exaggerating?

To save you the trouble, I’ve looked through Sidney Homer and Richard Sylla’s monumental (736 pages in the hardcover edition), A History of Interest Rates (4th ed.). These fellows have traced interest rates backward through time all the way to when human beings first began to settle into something resembling towns and first began writing things down, i.e., in ancient Mesopotamia, 5,000 years ago.

Let’s pause here and think about this. We are surveying prevailing interest rates beginning in Mesopotamia and the Babylonian empire, down through ancient Greece, the Roman Empire, Persia and Byzantium, the Dark Ages, Netherlands, the Italian city-states, the British Empire, and up to the present time in the US.

In all that time, prevailing interest rates have never been lower. And yet, Fedecbboj is trying to push rates even lower, assuming that disaster lurks just around the corner.

Really, boys and girls at Fedexboj, try to get a grip. Do you actually think that the most aggressively stimulative policies in history are required because matters are worse now than they were, say, when slaves were being used to build the pyramids? When the Pharaohs were ordering the murder of every male Jewish baby? During the Peloponnesian War?

No? How about the reign of Caligula? The crucifixion of Jesus? The destruction of Pompeii? The Sack of Rome? Are times worse today than during the Dark Ages?

What about the Thirty Years War? The Black Plague? The French Revolution?

Did this parade of horrors happen too long ago for you? Too much ancient history? Okay, let’s compare, say, World War I, the Great Depression, World War II, the Holocaust.

But, no, to the central bankers all those times were just peachy keen compared to the devastation of the early twenty-first century. If you are a central banker, today’s ghastly conditions can be dealt with only by the heroic efforts of the boys and girls at Fedecbboj, deploying the most extreme interest rate levels ever observed.

Are these people simply insane? Has central banker Groupthink morphed into a terminal disease? Or maybe Fedecbboj is so drunk with power that it has lost touch with the real world. We’ll look into those pleasant issues next week.

Next up: The Worst of All Possible Worlds, Part 2

[To subscribe or unsubscribe, drop me a note at]

Please note that this post is intended to provide interested persons with an insight on the capital markets and other matters and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.

Visit the Greycourt website »