Major central banks claim to be independent, but they are totally under the control of politicians. Many developed countries have tried to anchor an independent central bank to offset pressure from politicians and that’s all well and good in principle until the economy spins out of control – at zero-bound growth and rates central banks and politicians becomes one in a survival mode where rules are broken and bent to fit an agenda of buying more time. What comes now is a new reality...
The "Deflationary Vortex": Global Dollar Economy Suffers Biggest Plunge Since Lehman, Down $4 TrillionSubmitted by Tyler Durden on 01/20/2015 16:28 -0500
One of the macroeconomic observations that has gotten absolutely no mention in recent months is the curious fact that while global economic growth has not imploded in recent quarters, it is because GDP has been represented, as is customary, in local currency terms. Of course, this comes as a time when local currencies (at least those which are not the USD) have been plunging against the greenback on the back of the expectations that the Fed will hike rates some time in the summer or later in 2015. Which also means that in "dollar economy" terms, i.e., converted in USD, things are not nearly as good. In fact, as the chart below shows, the global dollar economy is not only shrinking fast, but it is doing so at the fastest pace since the Lehman collapse, having lost a whopping $4 trillion, or a whopping 5% drop, in just the last 6 months!
Having saved the world markets from a 10% correction fate worse than death (or recession) in October with 'hints' of reigniting QE4, The Fed's Jim Bullard is back to his jawboning best. Blaming The ECB's looming unconventional policy move for the global bond market rally (as opposed to collapsing growth and disinflation), Bullard proclaims the domestic US economy is doing well with tailwinds from low rates and oil prices (just don't tell the 7,000 Baker Hughes workers this morning) and tells WSJ's Jon Hilsenrath that he wants to “get going” with rate increases warning that the funds rate is 400bps below normal.
Another Former Central Banker Finally Gets It: "The Idea That Monetary Stimulus Is The Answer Doesn't Seem Right"Submitted by Tyler Durden on 01/20/2015 10:12 -0500
What is it about central bankers who wait to tell the truth only after they have quit their post. First it was the maestro himself, the Fed's Alan Greenspan (most recently in "Greenspan's Stunning Admission: "Gold Is Currency; No Fiat Currency, Including the Dollar, Can Match It"), and now it is the Bank of England's former head, Mervyn King, who yesterday told an audience at the LSE that "more monetary stimulus will not help the world economy return to strong growth." That this is happening just as we learn that in one year the world's 1% will collectively own more wealth than the rest of the world combined, and two days before Goldman's Mario Draghi unleashed up to €1 trillion (if not unlimited) in QE, is hardly as surprise, and will be surely ignored by everyone until the inevitable outcome of another "French revolution" finally arrives.
Since the creation of the Federal Reserve in 1913, the dollar has lost over 97 percent of its purchasing power, the US economy has been subjected to a series of painful Federal Reserve-created recessions and depressions, and government has grown to dangerous levels thanks to the Fed’s policy of monetizing the debt. Yet the Federal Reserve still operates under a congressionally-created shroud of secrecy. No wonder almost 75 percent of the American public supports legislation to audit the Federal Reserve.
As 2015 begins, policymakers around the world are faced with three fundamental choices: to strive for economic growth or accept stagnation; to work to improve stability or risk succumbing to fragility; and to cooperate or go it alone. The stakes could not be higher; 2015 promises to be a make-or-break year for the global community. The new networks of influence should be embraced and given space in the twenty-first century architecture of global governance. This is what I have called the “new multilateralism.”
The Fed's own favorite mouthpiece Jon Hilsenrath (for more see "On The New York Fed's Editorial Influence Over The WSJ"), just released a piece in which he claims, or rather his sources tell him, that the Fed is "on track to start raising short-term interest rates later this year, even though long-term rates are going in the other direction amid new investor worries about weak global growth, falling oil prices and slowing consumer price inflation." In other words, just like the ECB in 2011, the Fed which has hinted previously that it will hike rates just so it has "dry powder" to ease once the US economy falls into recession, will accelerate a full-blown recession in the US when it does - if indeed Hilsenrath's source is correct and not merely trying to push the USDJPY higher (for reference, see Reuters "exclusive" report on the Samsung takeover of Blackberry, denied by both parties within hours - hike some time this summer.
A few days after the SNB shocked the world when it became the first central bank to pull out of its currency war with the ECB, leading to an epic defeat not only for the Swiss economy whose exports are now set to crash and various brokers and macro hedge funds who were short the Swissy (even as the SNB is nursing an epic balance sheet as as result of its failed 3+ year intervention), and following the latest Chinese snub of its overzealous stock gamblers, next up on the "shock and awe" bandwagon may be none other than the Bank of Japan (something we noted over the weekend in "Is The BoJ The Next SNB?"), where according to Reuters, any hopes for even more QE may be dashed after a ruling party lawmaker and one of the architects of Prime Minister Shinzo Abe's "Abenomics" policies said that the Bank of Japan "does not need to ease monetary policy further this year unless the economy is hit by a severe external shock."
Market Wrap: Chinese Stocks Crash As Financials Suffer Record Drop; Commodities Resume Decline; US ClosedSubmitted by Tyler Durden on 01/19/2015 07:12 -0500
Following last week's Swiss stock market massacre as a result of a central bank shocker, and last night's crack down by Chinese authorities, it almost appears as if the global powers are doing what they can to orchestrated a smooth, painless (as much as possible) bubble deflation. If so, what Draghi reveals in a few days may truly come as a surprise to all those- pretty much everyone - who anticipate a €500 billion QE announcement on Thursday.
Everyone loves a good conspiracy theory debate. Regardless of whether you argue for it, or against, there are times when suddenly the ramifications for plausible truth are realized that overshadow the conspiracy. This is where the plot of truth can get far more sinister than the imagined conspiracy ever could.
My conclusion is that the SNB deliberately screwed the market, and in the process shot itself in the foot for 30-50 billion dollars. What were they thinking?
Top ten things that investors will likely be watching in the week ahead.
We’re getting back to normal, and though normal’s going to hurt – and far more than you realize yet - it’s hugely preferable to upside down; you hang upside-down long enough, it makes your brain explode. The price of oil was the first thing to go, central banks are the next. And then the whole edifice follows suit. The Fed has been setting up its yes-no narrative for months now, and that’s not without a reason. But everyone’s still convinced there won’t be a rate hike until well into this new year. And the Swiss central bank said, a few days before it did, that it wouldn’t. And then it did anyway. The financial sectors’ trust in central banks is gone forever. And none too soon. Now they’ll have to cover their own bets. If anything spells deflation, it’s got to be that. But not even one man in a thousand understands what deflation is.
Since the European sovereign-debt crisis erupted in 2009, everyone has wondered what would happen if a country left the eurozone. The risks created by the SNB’s decision – as transmitted through the financial system – have a fat tail - and the consequences will not be limited to Switzerland. After years of wondering whether the exit of a small, fiscally weak country like Greece could undermine the euro, policymakers will have to deal with an even bigger shock stemming from the exit of a small, fiscally strong country that is not even a member of the European Union.
Just to make things interesting, overnight Russia told a beleaguered Greece, and specifically its hurting farmers, that it "may lift its ban on food imports from Greece in the event it quits the European Union" according to Russian Minister of Agriculture Nikolai Fyodorov who spoke in Berlin on Friday. “If Greece has to leave the European Union, we will build our own relations with it, the food ban will not be applicable to it,” Fyodorov said as reported by Tass. In other words, Russia has casually thrown out feelers to Greece (and any other peripheral European country) and given it the option of joining the greater Russian sphere of influence (because the USSR 2.0 and satellites is still not trademarked), should it decide that 5 years after the first Greek "bailout" things for the country caught in an endless depression are as good as they will get with a bunch of Goldman bankers in charge.