Mr. ArmoTrader,

Perhaps you overstate your case. Newton's third law states that for every action, there is an equal and opposite reaction. In economics, we call them trade-offs. Just because central banks have "controlled" interest rates historically, does not mean that they will control them in the future. Moreover, it also does not mean that central banks have not caused distortions or problems in the past. In fact, they have - big time. The only question for us to resolve is "What are the trade-offs?"

I am more interested in the trade-offs or consequences of their actions, rather than succumb to a mistaken belief in their supreme power. Markets are and always will be the final arbiter of events, so there will be market and/or economic events that central planners can not control, no matter how hard they try.

To understand this, consider the composition of just how low rates have been "engineered" globally in the past 20 years or so: trade imbalances, fiscal deficit spending, total debt growth and central bank intervention. Central banks directly control only 1 of these 4 activities (setting of discount rates and/or intervention into bond markets) and directly influence credit creation with rates (low rates is partly why the world is grossly over-indebted right now). However, fiscal deficit spending and trade imbalances are largely outside their control and these factors have been significant as well.

For instance, persistent trade imbalances (e.g. Japan's trade surplus and the US trade deficit) have enabled the surplus countries to buy the sovereign bonds of their trading partners, while deficit countries ramp up total debt levels to enhance aggregate demand (due both to incremental demand from low rates as well as fiscal deficit spending). These are not small potatoes - the US trade deficit alone has generated about $5 trillion of foreign owned capital over the past 20 years - much of which ended up in sovereign US Treasuries - bidding up bond prices and down yields. Do you think that this game can go on forever?

The "free" exchange rate mechanism is supposed to enable trade imbalances to rectify themselves due to the movement of exchange rates. Central bank/government behavior blocks the free trade of currencies, so balance in trade can not happen. So, what are the trade-offs? Where does it manifest itself? Short answer: Debt. Even your favored theory of MMT proposes that countries should print-as-they-go due to the printing press. Had governments never issued a dime in debt, the only difference today is that prices would be a lot higher. However, they all have debt which absorbs the inflationary power of excess spending and printed money over time. But like a levee in a flood, at some point the tidewater is much too great. And in the case of Japan, it all flows through their federal budget in circular fashion. So, whether it is a debt crisis, a currency devaluation or an inflation crisis, it's all a difference without distinction.