The Complete and Total Failure of Central Banks to Create Growth

Phoenix Capital Research's picture

The Central Bank rig of the last five years appears to finally be ending.


Since the Great Crisis erupted in 2007-2008, Central Banks around the world have resorted to two primary tools in their efforts to reflate the system:


1)   Lowering interest rates

2)   Quantitative Easing or QE


Regarding #1, since 2007, Central Banks have cut interest rates an incredible 520 times. One could write a multi-volume book on the consequences of this, however, painting in broad strokes lower rates do the following:


1)   Punish savers and others whom depend on fixed income for retirement

2)   Continue to concentrate asset ownership in the hands of the elite  who can leverage up at near zero rates to acquire more

3)   Continue to encourage poor investment

4)   The mispricing of assets across the board as rates no longer reflect


In the US, the Fed has now kept interest rates at zero since late 2008. The end result is that housing is once again in a bubble (home prices relative to disposable income is in fact high than in 2007) while economic growth remains anemic (GDP has not expanded at 3%+ for a single year since 2007) and employment continues to fall (the employment ratio or percentage of Americans of working age who are gainfully employed remains at levels last seen in the early ’80s.


The second most popular monetary tool employed by the world’s Central Bank is Quantitative Easing or QE.


If you’re unfamiliar with this concept, it works as follows:

1)   Central Banks print money

2)   They use this money to buy assets (usually sovereign bonds or mortgage backed securities)


Doing this provides liquidity to those financial institutions that own the assets the Central Bank buys. QE also allows the Government to run a massive deficit as the Central Bank becomes the de facto buyer of sovereign debt.


The entire concept of QE is based on the idea that the best means of fighting an economic contraction is monetary easing. The Fed does this to attempt to smooth the troughs from contractions.


The only problem is that QE doesn’t work. In fact, I cannot find a single instance in which it has in history.


The UK has announced QE efforts equal to an amount greater than 20% of its GDP and has not seen any meaningful job or GDP growth.


However, Japan has outdone even the UK in terms of monetary madness. Over the last 20 years has announced nine rounds of QE for a combined effort equal to 20% of its GDP. During that period GDP growth has actually slowed while unemployment has failed to fall.



Convinced that the answer to its problems is more QE, Japan launched a $1.4 trillion QE effort last month.


To put this amount into perspective, Japan’s entire GDP is $5.8 trillion. So the country effectively launched a QE program equal to 24% of its GDP in a SINGLE PROGRAM.


The end result is that by the time this program is completed, Japan will have spent QE equal to well over 40% of its GDP.


And with what results?


Inflation is rising in Japan as evinced by the increased cost of living there. Incomes have failed to rise accordingly, resulting in Japanese consumers getting squeezed.


The evidence is clear, QE has been a failure for Japan. It’s been a failure for the UK. And it’s now a failure in the US. Eventually the stock markets will figure this out. At that point the markets will collapse.


For a FREE Special Report outlining how to set up your portfolio from this, swing by:


Best Regards

Phoenix Capital Research 







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geno-econ's picture

Has anyone figured out how much of QE winds up extending the life of foreign central banks on the backs of US taxpayers? Obviously much of US toxic assets wound up in foreign banks and QE delays the day of reckoning but is not the responsibility of Uncle Sam or US taxpayer. It is the responsibility of Banks, regulators, rating agencies and accounting firms that were complicit in creating this mess. The irony is the same hoodlums are benefiting from QE. Ugh----the noise you hear is puking

pitz's picture

There's no reason why the "non-elite" can't borrow money at zero percent (or something close to it) and acquire the same assets.  If a bunch of old people are sitting on their 0% "savings" account, and expecting more for taking no risk whatsoever, then why should they be given a higher return? 

LMAOLORI's picture




"Doing this provides liquidity to those financial institutions that own the assets the Central Bank buys."


Doing this also provides money to those financial insitutions. $4 Billion or more a year.

The Fed and Shadow Banking


"Part of this inversion of roles is supply. In place of the usual $50 billion, we have $3 trillion or so bank reserves. Bank reserves can only be used by banks, so they don't do much good for the rest of us. Now, they just sit as bank assets in place of mortgages or treasuries and don't make a difference to anything."

"QE also allows the Government to run a massive deficit as the Central Bank becomes the de facto buyer of sovereign debt."


Which is why the politicians won't do a damn thing about the Fed.  This is how they keep you a tax slave! This is why we were taken off the gold standard.

How long before interest payments on the debt alone exceed a Trillion Dollars is a better question IMO.

disabledvet's picture

word is that Western Massachusetts is using bitcoins for all sorts of transactions. since these transactions in effect "do not occur" then they are completely free of tax of any kind. there are still enough "dollar payers" to have "a cop." the the best Mayor "the boss) is not paid but takes the job free of charge and awards ZERO contracts for anything...but he does over sea payment of "Bob...the peace officer." He gets 500 bucks a week in dollars...and the rest in bitcoins where he can his daily alottment of coffee and donuts. "accepted at Dunkin Donuts too"...although I hear he prefers Uncle Pete's place.

AngelEyes00's picture

"QE also allows the Government to run a massive deficit as the Central Bank becomes the de facto buyer of sovereign debt."

I don't know whether to laugh or puke.  The Fed gets set up like it's independent (by the govt.), so the govt. can fund it's massive deficits from the Fed? The govt. can also 'borrow' from social security?  These ideas are hideous and make no sense.  How can any entity lend itself money?  Who at the govt. is going to pay back what was borrowed from people paying into social security?  People will have to pay it back, because the govt. only gets money from people.

Ok, I've decided to puke - ehhhhhhhhhhhhhhhhhhhhhhhh!!!!!!!!



rsnoble's picture

Someone needs to spark this fire i'm so tired of the suspense im getting ulcers. 

For those that like charting(and save me the it doesn't work thesis im well aware of those opinions) it will be interesting to see if Greece coincides with recent market charting showing a possible top.  Yes I know top calling is bad for your health lol.


I'm just saying that's it well known that you can forsee an event coming even with our funny money markets it still works often.  You won't know what the event is you just know that something is coming.

Debt-Is-Not-Money's picture

"Someone needs to spark this fire..."

When Yellen "takes over" at the end of this month, that will be the spark (BenRat can't wait to leave this sinking ship!