It’s safe to say that as this is written at noon EST on Monday the 24, every economic policymaker in this hemisphere (and a lot of sleepless folks elsewhere) are staring at screens and wondering if this is it. They’ve been playing with fire for such a long time, trying to balance incompatible goals of low interest rates, stable currencies, and accelerating growth that for a while they almost believed that they would get away with it. That the laws of economics could be bent to their will forever. Now, they see that this was hubris. That their sense of control was just an illusion bought with credit on a scale so large that the numbers had become meaningless.
This is the nightmare scenario that keeps central bankers and institutional investors up at night because, based on Japan’s experience with hyper-aggressive monetary ease, there might not be a fix. If even easier money is met with dramatically higher bond yields, as in Japan, then there’s nothing left to do but to let the system unravel. Not that they won’t try one more role of the dice. It’s just that this time their odds of getting snake eyes have gone way up, and they know it.