Hate Donald Trump? Blame the Fed, Merk says

"The [zero interest rate policy] allows governments to engage on spending sprees, such as a boost of military spending Prime Minister Abe might pursue," Merk writes.

These "spending sprees" happen because the zero interest rate policy allows governments to carry what Merk believes are "excessive debt burdens" through quantitative easing.

In Merk's view, QE is basically "government debt monetization." He uses the Fed's U.S. treasury-buying QE program to explain.

"Those Treasuries (or new Treasuries that the Fed rolls into) might be held indefinitely by the Fed (despite claims of balance sheet normalization)," Merk writes, adding, "Meaning that U.S. government will never pay the principle, and the U.S. government effectively pays zero interest on that debt because the profits of the Fed flow back to the U.S. Treasury."So what needs to change?

Some of what needs to change, Merk says, is clearer definitions of the responsibilities of Congress and the  Fed.

"In our assessment, Congress has increasingly outsourced its duties to the Fed (the same applies to politicians and central bankers to many other parts of the world)," Merk writes. "The Fed now ought to look after inflation, employment, and financial stability. The Fed, in our humble opinion, is not only ill suited to tackle most of these, but invites political backlash as they step on fiscal turf."

Monetary policy should only focus on the amount of credit available in the economy, while fiscal policy focuses on how this credit gets allocated through tax and regulatory policy.

"If the Fed now allocates money to a specific sector of the economy, say, the mortgage market by buying mortgage-backed securities (MBS), they meddle in politics."

Basically, according to Merk, the Fed needs to stand up to Congress.

"The Fed needs to have the guts to tell Congress that it is not their role to fix their problems," he writes. "It requires guts because they must be willing to accept a recession in making their point."