Central Banks

Moments ago, as part of its quite stale and otherwise irrelevant minutes of its September 2-3 governing council meeting, the ECB did precisely the same, announcing that as part of its ongoing open-ended QE program (which the ECB expects will be implemented fully by September 2016 "or beyond") it would frontload purchases between September and November because, you guessed it, volatility once again declines in December.

It was supposed to be the day China's triumphantly returned to the markets from its Golden Holiday week off, and with global stocks soaring over 5% in the past 7 days, hopes were that the Shanghai Composite would close at least that much higher and then some, especially with the "National Team" cheerleading on the side and arresting any sellers. Sure enough, in early trading Chinese futures did seem willing to go with the script, and then everything fell apart when a weak Shanghai Composite open tried to stage a feeble rebound into mid-session, and then closed near the day lows even as the PBOC injected another CNY120 bn via reverse repo earlier.

Governments and their central bank creations usurped market-based monetary and banking systems to serve the plundering purposes of kings, princes, parliaments, and special interest groups who all wanted to hold the magical hand of the monetary printing press. Print up money (or its digital substitutes and surrogates in more modern times) and you can have access to all the hard work of others without the reciprocal effort. The monetary social engineers' century-long legacy in the arena of money and banking has been the booms and busts of the business cycle. The time has come to end the tragic and disruptive reign of monetary central planning.

"I would say, don't worry" said Yi Gang, deputy governor of the People's Bank of China, after the International Monetary Fund warned of risks in China's economic challenges.

"The world economy is looking grim" - said Raghuram Rajan, Indian central bank governor and former chief economist of the International Monetary Fund.

"There's a circularity and self-fulfilling relationship between commodity currencies, lower commodity demand and lower commodity prices in an environment of oversupply."

If you think this sounds like some kind of conspiracy theory, consider that France just banned any transaction over €1,000 Euros from using physical cash. Spain has already banned transactions over €2,500. Uruguay has banned transactions over $5,000. And on and on.

"The collapse in inflation expectations tells us that the market believes the central banks, despite their monetary profligacy, are failing to prevent the western economies from turning Japanese, and thus at risk of repeating their devastating slide into outright deflation in the 1990s."

News That Matters

The US and world economies are drifting inexorably into the next recession owing to the deflationary collapse of commodities, capital spending and world trade. These are the inevitable “morning after” consequence of the 20-year global credit binge which has now reached its apogee. The apparent global boom during that period was actually a central bank driven excursion into the false economics of household borrowing to inflate consumption in the DM economies; and frenzied, uneconomic investing to inflate GDP in China and the EM. The common denominator was falsification of financial prices. By destroying honest price discovery in the financial markets, the world’s convoy of money-printing central banks led by the Fed elicited a huge excess of financialization relative to economic output.

"The helicopter. Rather than buying assets, central banks drop money on the street. Or even better, in a more modern and civilised fashion, credit our bank accounts!" Yes, "even better!"...

If yesterday's 3Year auction was solid across the board, then today's sale of $21 billion in 10Y was an all around show-stopper,

There is little that is of greater importance to systemic confidence than faith in the abilities of central banks. Thus, when even the mainstream financial press begins to publish articles about a potential “loss of credibility” faced by these august institutions, one must begin to pay close attention.

A popular view among some market participants is that the Fed is unlikely to hike in a presidential election year. While many economic and market factors may influence when and how often the Fed hikes in the upcoming months, BofAML does not expect the timing of US elections to play any meaningful role in the Fed’s policy deliberations.

As the WSJ has kindly offered, anyone who wishes to, can ask Ben Bernanke questions about his "courage" to print $3 trillion and make the rich richer. Just make sure to tag your tweet with #FedWSJPro.

The future direction of the planet is a choice between independent money and the central bankers counter-party paper Ponzi. Gold is independent monetary wealth that cannot go broke.