Nov 212014
 November 21, 2014  Posted by at 9:22 pm Finance Tagged with: , , , , , , ,

NPC US Navy photographers March 24, 1925

The original idea behind a central bank is that medium and longer term monetary policy should not be allowed to be held hostage by a short-term prevailing political wind, that an incumbent politician and his/her party should not be permitted and/or enabled to manipulate a nation’s currency for political gain. A central bank was (and still is officially) supposed to be independent of politics, to be a buffer between a society’s long term interests and a politician’s short-term ones.

In particular, no-one should issue huge amounts of money to make it look like they were just awesome leaders that make everyone rich, while sinking the future of a society in the process. I know, I know, there are tons of other ways to explain the drive to found central banks, just google Jekyll Island, but the issue of economic stability vs fleeting political flavors is certainly a big one.

So. Have we come a long way or what’s the story? Today’s central banks do nothing BUT engage in short term policies that keep incumbents as happy as they can be in bad economic circumstances. Central banks have become political instruments that pamper to the tastes of whoever may be in charge on any given day, which is the exact 180º opposite of why they exist in the first place.

And because they’ve gotten so far removed from what they’re supposed to be doing, central bankers start to realize they’ve ended up in completely unfamiliar and uncharted territory. And now they are, like anyone would be in that kind of position, scared. Sh*tless. And as we’ve all learned from kindergarten on is that fear is a bad counselor. They may have risen to positions of oracles and household names (also entirely contrary to their original job descriptions), and they may have fallen for the flattery that comes with all that, but deep down they know full well they’re way out of their leagues.

The best they can come up with is trying to bluff their way out of their conundrums. Because it’s not as if they don’t understand that doing exactly what they were intended not to do, i.e. flood markets with cheap money not based on any underlying real values, or work performed, will of necessity at some point blow up in their faces. They just hope and pray it will take long enough for them to be somewhere else, enjoying a Banana Daiquiri when that mushroom appears on the horizon.

Central bankers have been reduced to political toys, and they – at least at times – realize that’s not a good position to be in. If only because it makes them redundant. If they only simply do what politicians want anyway, we might as well just let those politicians set monetary policy by themselves.

That puts central bankers in a situation in which they are being set up as patsies, to catch all the bad rap if and when things get even worse then they already are. And they will. Moreover, obviously it’s not the politicians that decide, but the people who finance their campaigns (they do need long term policies), and once you realize that, you really need to wonder what kind of court jesters Bernanke, Yellen, Draghi and Kuroda have become.

Now that we’ve come to naming names, look at them: Draghi today did another press-op in which he blubbered about what he’ll do about inflation, and fast. But there’s nothing blooper Mario can do to make people in Europe spend their money any faster, if only because they don’t have any money. And his banking overlords won’t let him hand out money to the people even if he would want to (dubious for a Goldmanman), so boosting that consumer spending is never ever going to work.

All Mario gets to do is spread the alarm, and then catch the fall. But you know, you’re thinking, doesn’t he know hat’s going on, and he may well know very well. In the end that’s just a sad story, and because of the role he plays he deserves to never again have a single night of solid sleep. His role is just too ambiguous. And most of all, it hurts too many innocent people.

The Fed has Janet Yellen, who’s trying to contortion her way into explaining that the US economy is doing so well she just must raise interest rates, which is so far off reality it’s not funny, but it’s the going story, because her paymasters on Wall Street need or want more profits, and they’ve gotten all they could out of the zero % policies now that every mom and pop is on the same side of the trade as they are.

All I can think when I see her pop up again is why would anyone, let alone Janet herself, want to be in her position? Where’s the satisfaction? Why not go live somewhere out on Martha’s Vineyard and let others do the damage? What drives these clowns?

The Bank of Japan’s Haruhiko Kuroda is perhaps the most overt and obvious political tool of them all, who does only what PM Shinzo Abe tells him to, and drives his country into a deep dark stinking swamp while he’s at it. Kuroda doesn’t even know how to spell ‘independent central banker’.

And talking about bad counselors, Bloomberg reports on a meeting Abe had with Paul Krugman, who won that Fake Nobel a few years back for the same single two words he undoubtedly told Abe: Spend and More. If any country today could benefit from having a truly independent central bank it’s Japan, But of course, the Bank of Japan is, if anything, even less independent than the rest of them.

What drives central bankers in November 2014 is fear, pure and simple, if not absolute screaming panic. Together, they’ve literally spent untold trillions of dollars, and what is the result? People everywhere across the planet slow down their spending more and more. And that means deflation. Which is what they’re all supposed to be so afraid of. But which they also all know cannot be averted.

And then this morning we see that the Chinese central bank People’s Bank of China, PBOC, has lowered its interest rate targets. The PBOC chairman’s name is Zhou Xiaochuan, and there’s of course plenty reason why nobody knows that name. That is, nobody even expects the PBOC to be independent from the rulers.

Which is somewhat curious, because the role Zhou plays is no different at all from that of Yellen, Draghi and Kuroda. The only difference is the pretense that the latter are not political toys and instruments and kow-towing fools.

Why does Zhou lower interest rates? Because he’s scared. Well, he and his forbidden city masters. China’s economy is falling so much so fast that they see the historically by far biggest ever debt-driven economic model implode on their watch. Xi and Li and Zhou fear the wave that’s coming for them, and given the size of the Chinese economy, no matter how fake and debt-based it is, we should all share their angst.

Japan is dead, a zombie with lipstick, and still the world’s no. 3 economy. One more reason for all of us to be afraid. Add in Draghi whose only resort is to find different ways of saying the same thing he will never ever be able to do, to buy everything in Europe that’s not bolted down and then buy the bolts too, and you have am entire world that should be scared straight out of their undies.

Which makes Janet Yellen’s task of defending the upcoming rate hikes all the more amusing. Yeah, sure, the US economy is doing great. Sure, grandma. Look, we all know your place in history will be that of someone who was either too complicit or too stupid while the walls were crumbling. And we all know today that you’re scared to even open your mail in the morning. Because we all know as well as you do that the picture of the US economy that you paint is a virtual reality. The only question is, do you yourself actually live in it?

Home Forums Central Bankers, Fear and Other Bad Counselors

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    NPC US Navy photographers March 24, 1925 The original idea behind a central bank is that medium and longer term monetary policy should not be allowed
    [See the full post at: Central Bankers, Fear and Other Bad Counselors]


    I use this web site often, Bloomberg stock futures, to see what the market is doing.

    There is a little box to the right explaining the market moves. They don’t say the market moves “because” like the lamest the mainstream but instead use “as”. It has been striking how most of blurbs and stories do not pertain to the economy at all. It’s all “as Dragi” or “as the PBC or “as the Fed”.

    This is actually a positive development in the sense that stocks have always simply been a barometer of financial market liquidity and central banks ultimately are the source or cause of the liquidity trends. The thing is however that this fact has always been hidden behind stories like ‘the market rose because earning’, etc. etc. It has been the project of everyone to maintain the stock market was a mirror of the economy. That is no longer the case. No longer is the pretense worth advertising, which is the bad part too. How long can the system hold when one of its most important myths is abandoned? As in we don’t care about you losers, just print and we win.

    Hendry’s knowing skepticism and cynicism is all well and good for him but he’s a winner working for the winners. What about the losers with no job at all or the slightly better losers with a job that doesn’t pay the bills. They are not going to be skeptical they are going to become ever more cynical. More and more people are onto the game. Central banks ‘stimulate’, stocks rise. The winners are as happy as could be, poor children be damned.


    rapier – “More and more people are onto the game.” I was talking to a lady in the supermarket yesterday, just a stranger, and I was surprised that she knew exactly what was going on. She laid out the central banks, the corruption. I couldn’t believe how knowledgeable she was. Then up at the checkout, I overheard two more strangers discussing cereal, genetically-modified foods, and one of them said, “It’s criminal. They are slowly poisoning us.” People are catching on!

    Karl Denninger today had a post entitled “Bluntly: QE Doesn’t Work”.

    “Growth? What growth?

    And yes, credit emission is not limited to central banks or governments — in point of fact they’re not the largest source of the problem in that they step in only when private banks can’t or won’t!

    Everyone wants to scream “END THE FED!” but in fact if you ended the Fed you’d do nothing for two reasons:

    The Fed is not the largest source of the problem; that is (by a huge margin) found in the private banking cartel.

    The Fed can only buy US Government securities. Therefore, if there is no deficit there is no Fed buying activity.

    It’s that simple folks when you boil it all down. The Fed can want to engage in QE but if there are no government bonds to buy then it is unable to do so. Without continued new emission of more and more bonds (that is, more and more deficit spending) The Fed is unable to perform “QE”; it is not mathematically possible given the boundaries they are forced to operate under.

    The reason that such attempts cannot work is that the smaller is never able to upstage the greater. That is, a minority position is never larger than the whole. By definition it is impossible for The Fed or any other Central Bank to violate this precept; it is simple arithmetic.

    So why do it?

    That’s easy: It’s far easier to steal, and you’re less likely to get shot doing it, if you steal by subterfuge than engaging in your theft through a straight-up “in your face” assault.

    But it is The Federal Government and their cronies, not The Fed itself, that is doing the stealing.”

    And Greenspan was at a New Orleans Investment Conference in October where he admitted that the Fed does what Congress requires of it, that it merely plays along. He said, “I never said the Fed is independent.”

    When it comes right down to it, Congress could dismantle the Fed tomorrow if they wanted to, and you can bet they would if the Fed didn’t do as they were told. Somebody is pulling the strings, and it sure isn’t Obama and the other slimeballs in the Capitol (they’re puppets too). The Fed AND Congress are taking orders from someone. Who is it?

    V. Arnold

    Just listening to the politicians in the U.S. is one of the most frightening things I do on any given day…

    Jef Jelten

    Raleigh – You are all over the place.

    The “private banking cartel” is the fed check out who is who in those structures and you will see and they can and do buy just about anything they want.

    The fed is the front man for the banking cartel and pretends to be cowed by congress but it is all Kabuki. Greenspan, bernank, Geithner, whoever… they all have about as much decision making power as G. “the decidamicator” Bush or any other Prez for that matter.

    “The Fed AND Congress are taking orders from someone. Who is it?” Banking cartel … got it?

    Ken Barrows

    The Fed isn’t audited, so who knows what it buys. It has admitted to buying mortgage backed securities (MBS) as well as Treasuries.

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