Are central banks out of bullets?

In a recent letter John Mauldin worries that central banks are ‘out of bullets’, but this is not something that any rational person should be worried about. Instead, they should be worried about the opposite.
The conventional view is that with interest rates at all-time lows and with vast amounts of debt having already been monetised, if a recession were to occur in the not-too-distant future there would be nothing that the central banks could do to ameliorate it. However, this view is based on the false premise that central banks can smooth-out the business cycle by easing monetary policy at the appropriate time. The truth is that by distorting interest rates, central banks get in the way of economic progress and cause recessions to be more severe than would otherwise be the case.
Think of it this way: If it is really possible for a committee of bureacrats and bankers to create a better outcome for the economy by setting interest rates (the price of credit), then it logically follows that a healthier economy would result from having all prices set by committees comprised of relevant ‘experts’. There should be an egg committee to set the price of eggs, a car committee to set the price of cars, a massage committee to set the price of massages, etc. After all, if it really is possible for a committee to do a better job than a free market at determining the most complicated of prices then it is certainly possible for a committee to do a better job than a free market at setting any other price.

This post was published at GoldSeek on 15 July 2016.