Hong Kong Fed's Epiphany: Is Bernanke Wrong About Everything?

Tyler Durden's picture

It seems not every nation's head of central banking believes in the Bernanke Doctrine of moar QE is better QE... Hong Kong Monetary Authority Chief Executive Norman Chan said Monday that quantitative easing is not a panacea, and added:

...there is a possibility that the process of deleveraging is disrupted by quantitative easing, leading to sharp increases in asset prices in the first place. Yet, since such increases are not supported by economic fundamentals, any increase in wealth will be seen as transient... (and asset prices might drop sharply and remain volatile). As a result, households are unwilling to increase spending and in the end, the real economy fails to rebound.


Via CRI English:

Hong Kong Monetary Authority Chief Executive Norman Chan said Monday that if the process of deleveraging is disrupted by quantitative easing, asset prices might drop sharply and remain volatile.


When delivering a speech entitled the Global Deleveraging: The Right Track at the Hong Kong Economic Summit 2013, Chan said that excessive leveraging, or over-borrowing, in major industrialized countries was the root cause of both the global financial crisis and the more recent sovereign debt crisis plaguing Europe.


Chan said quantitative easing is not a panacea, but it is the exact opposite of deleveraging. In the past three years, quantitative easing had limited stimulating effect on the real economy. "In order to solve the structural imbalances built up in the past two decades, we must get to the bottom of the problem."


There is a possibility that quantitative easing produces the desired results, which is a very desirable scenario as global economy will return to its normal growth path, he noted.


However, there is a possibility that the process of deleveraging is disrupted by quantitative easing, leading to sharp increases in asset prices in the first place. Yet, since such increases are not supported by economic fundamentals, any increase in wealth will be seen as transient.


As a result, households are unwilling to increase spending and in the end, the real economy fails to rebound, if inflationary pressure builds up alongside asset price increases, central banks may consider exiting the market and raise interest rates, the authority's head said.


When economic performance, inflation or monetary policy falls short of market expectation, asset prices might drop sharply and remain volatile, he added.


Chan said he was certain that since the outlook for macro economic and financial environment is very uncertain, it is highly possible that large fund inflows and outflows as well as sharp fluctuations in the financial markets will continue to be seen.


"We should all take precautionary measures and get to the bottom of the problem, learn from others' experiences and avoid overstretching ourselves. Otherwise, we may find ourselves being trapped in the debt abyss with no way out," he said.

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Chuck Bone's picture

Ben's been saying it's transient this whole time...

ACP's picture

He may have been talking about middle-class savings. That's definitely transient.

TwoShortPlanks's picture

Shut the fuck up Chan and stack boy, stack!

Kitler's picture


"We should all take precautionary measures and get to the bottom of the problem, learn from others' experiences and avoid overstretching ourselves. Otherwise, we may find ourselves being trapped in the debt abyss with no way out," he said.

Too late Norman, we are light years past the event horizon of the "black holes" that are our financialized economies...

knukles's picture
The whole losses "thingie" that go along with bad debts being realized during a deleveraging cycle....
We are in a deleveraging cycle and as per reality, far too much debt both good and of a highly dubious nature was created as a end result of too much money being made available, read central bank policies. During a deleveraging, debts, bad debts have to be written off
Somebody somewhere has, if any sensible type of accounting is pursued, must take a loss.  Whether the originator, secondary holder or as we are seeing in the EU model (as opposed to the Iceland/Swedish models) it is passed along to the taxpayer. 
Which in and of itself is suspicious as it mitigates, in fact dissolves the contractual relationship between borrowers and lenders.  (At the point of a spear...)   So where we stand now (particularly with regard to the EU and using it as a template for purposes of illustration including whatever dozen or so alphabet organizations related thereto) the desire (in order to preserve what, I might ask, but that's another story, entirely) is to make the debt load disappear without realizing losses, right?
That's the bottom line.
So they have (in this case for example) the Greeks buy back their own debt at a discount to face/original sale.... makes economic sense.
But in order to do so... 1.) somebody has to pony more good funds up for the purchase since by definition, the Greeks have no funds or else the bonds would not be trading at a steep discount.
So therefore somebody is making a new bad loan to supplant the original bad loan and
... if the new loan is so favorable as to make the purchases economically viable, their price would likewise need to be marked down substantially and thus, a loss realized And, 2.) the holder selling the severely discounted (as in credit risk/spreads as the entire global term structure of rates has collapsed as is part of the deleveraging,... the flight to quality) debt has to realize a loss.   So, somebody somewhere has to take the hit to capital to make the stuff work in a world of reasonable accounting. Or the books are being cooked.   So, why is it that the whole bloody financial community has just not given up on the charade?

There's something deeply wrong with the whole picture that will not change from one day to the next, will not go away, will not work out in a reasonable manner.   This is not going to end well.
Is not in the process of getting to the end, well. There is something terribly wrong with this whole picture.
That printing, shoving paper about alphabet organizations, whatever else, will solve.
Bad paper has to be written off and losses realized some where by some body at some time.....
Period.   I'm loosing interest in the topic of the EU, EBC, Euro, etc.
It's bad, failed and only being papered over with Ponzi type, three card Monti (get the pun?) policies (official, by the way, set out by the very same organizations sworn to prohibit such)and essentially worthless money creation.   Being long anything in the EU is like owning all those Chinese stocks that upon visual inspection have no physical plant, etc.... But people keep going back to them and.....  

  Bad juju a comin' in size....   One day ... One day, people are gonna wake up to this whole miasma, quit pretending and all the elephants gonna try to squeeze through the keyhole at once....  

economics9698's picture

Fucking Chicoms are like the Borg, just keep getting smarter and smarter. 

FL_Conservative's picture

That's because they can sit back and watch our inept leaders and think, "How fucking stupid is that"?

ACP's picture

I've often thought a good name for a political reality show would be:

"It Sounded Like a Good Idea at the Time."

economics9698's picture

"It Sounded Like a Good Idea at the Time" is when you get drunk and fuck the dog in front of your brother in law. 

akak's picture

"It Sounded Like a Bad Idea at the Time" is when you get drunk and fuck your brother-in-law in front of the dog.

Thamesford's picture


...but someone at the FT said the debt was "sustainable".


trav777's picture

the "root" of the problem is that oil peaked.

All this debt bs is just a sideshow.  Households cannot INCREASE spending without an INCREASE in income- real income.

MeelionDollerBogus's picture

hold the phone, trav, Robert Mix's Blog: Precious Gas!

See, natural gas can be used to fuel vehicles, is cheap & clean, and is also used for making fertilizer.

So why do we need to care about peak oil?

In fact, garbage can be made into oil and hemp can be made into plastic without oil, so why do we need to care about peak oil?

Oleander's picture

I am watching NCIS and the agents just drilled a gold bar ..... tungsten!  LoL! Someone pulled a switch. 

The trend is your friend's picture

he keeps talking like that and he's gonna get whacked

Stoploss's picture

Black ball cap with WWIII logo.

Any body seen it?

whatsinaname's picture

He's worried now cause parking spots in HK are costing more than NYC apartments.

Jason T's picture

well, there is no way out.  Watch how Japan fairs next year.  

LongSoupLine's picture

Hmmm, it seems exporting inflation is not popular...with the unwanting importers.


Fuck you Bernanke...your fucking game of middle class asspump is nearing an end.  I hope you and all involved die a horribly painful fucking death you fucking stinking asshole.


Come on now LSL... 

Tell us how you REALLY  feel!

sumo's picture

It's an arm-wrestling contest

"No Risk" Geithner is in the arena, his arm shaking, his veins bulging, his voice hoarse from shouting "get off the peg ... or we kill you with inflation ... get off the peg", His Chinese opponent silently curses, under his breath, "first we own you, then we fuck you, with gold dildo, bitch"

trav777's picture

STFU idiot.

The Bernank saved the financial system by papering over the collapse of the compound interest animal.

It is not HIS fault that the US middle class was a cheap oil aberration.  He's not responsible for the insane sense of entitlement that Americans have, either.

His job was to prevent a financial collapse that anyone with a basic understanding of compound growth knew was inevitable.  And he did so.

fuu's picture

"His job was to prevent a financial collapse that anyone with a basic understanding of compound growth knew was inevitable.  And he did so."

Bwahahahahahahaha GTFO.

MeelionDollerBogus's picture

"It is not HIS fault that the US middle class was a cheap oil aberration."
That's the entire last 60 years. Maybe more.
What is Bernanke's fault is the spurring on of the housing price bubble & the crash that directly resulted. Previous layers of crash & non-recovery can be blamed on Alan Greenspan for the same reasons.

"His job was to prevent a financial collapse that anyone with a basic understanding of compound growth knew was inevitable.  And he did so."

No, the crash is proceeding, city by city, bond by bond, commodity by commodity, ever showing the dropping wages vs real cost of living, the dropping labor participation rate. Bernanke failed if anything about inflation or employment is his job, anything about preventing the on-going collapse which is certainly ongoing.

yogibear's picture

Don't forget the other Fed assholes.

tooriskytoinvest's picture

America’s Economic Future Is A Disaster: Government Benefits Killing Incentives for Jobless To Find Work, The Fed Paying Banks Not to Lend, Now The Government Have To Cut Spending And Raise Taxes For Next 10 Years.



machinegear's picture

I think I just read the entire article from the URL.

Schmuck Raker's picture

That's what makes tooriskytoinvest a moderately more palatable shill than snakeeyes - no click required.

trav777's picture

ANY article that claims the banks aren't lending because they're being paid to is, a priori, horseshit.

There are NO MORE qualified fuckin BORROWERS and MORE LENDING AT INTEREST is not the fucking SOLUTION.  it is the PROBLEM.

America's future is a disaster because of Americans.  This is 25% a 3rd world country now...wtf did people EXPECT from changing the population from high 80s % white to "diversitopia"???  Due to birth rate differentials, it will only GET WORSE.  It cannot be saved at this point especially when cretins out there don't even know what the hell the problem is.

MachoMan's picture

The other issue is loan demand from credit worthy borrowers...  I can't go get a loan at present interest rates (historically low), invest the proceeds, and actually make a spread worth my while to take the risk...  oops.

MeelionDollerBogus's picture

Funny how in Canada we have even more diversity & yet we have no such massive problems as the US. The population mix-up is not the problem. The problem is the central controllers. That means Fed Reserve & that means proxy banks that issue loans with the same special privilege for state-sanctioned counterfeiting.

disabledvet's picture

it's ironic that there is a "sort of complaint" since with the HK dollar pegged to the greenback has created one of the greatest speculative real estate bubbles in all history in the HK. We all know what will be done in the coming days...it certainly makes no sense either here OR there. "it is just done and that is that." Truly great stuff WB..."there's a point where this isn't funny anymore"...and you remind us all of that. Was it ever a good thing to begin with? http://www.youtube.com/watch?v=n6oZTq_KsXc

williambanzai7's picture

The real estate boom/bubble is primarily benefiting two classes: (a) mega-tycoons and (b) Mainland billionaires.

Ordinary Hong Kongers are furious because the dream of owning a decent home is evaporating for most of them.

Meanwhile, the main shopping areas, such as the one in this picture, are totally inundated with mainland shoppers. This is supposed to be the quid pro quo. You get to be a shop employee for mainland tourists. I suppose this is happening everywhere.

The RMB has appreciated significantly against the HK dollar which is pegged to the USD (the most manipulated currency on this planet). 

Element's picture

It's nice to see the Chinese also celebrate the birth of the Lord with a little trip to the shops.


That's some serious Asian mind-fucking going on, right there.

Central Bankster's picture

DING DING DING!  We have a winner.  How hard was this to figure out in all seriousness!?

Al Gorerhythm's picture

For Keynesians? Remember, that's a discipline that they're using for proforma responses to inputs, straight out of the text book. The gall of economics  professors and TV talking heads completely refusing to acknowledge the failure of their doctrine by admitting; "THEY ARE PRINTING MONEY to save their system"! Frauds.

"Different strokes for different folks", seems the rule of thumb in that school.

Aquarius's picture

As I have said before, Bernanke is serving different Masters which appear to be destroying and or seconding the rest of the World to the powers that control the fiat and asset holders and as such his priority is not saving the World per se, au contraire, it is a focussed attempt to have the rest of the World destroy themselves - by leveraging their belief in his Economic Theory.

Oh what fools they all are but this is exactly what Economists do - just remember, that Bernanke has an entirely different and hidden (not so hidden) agenda.

But these Masters of the Universe are just not as intelligent as they think they are - fiat does not mean intelligence - they have over-stepped broadly and we will all soon pay the price, demographically speaking - Mileage will vary.

No warning, anytime, your future will arrive and it will not be embraced warmly, thanks to Ben and the global cult of Economists.

Ho hum (from the steppes of Krakatoa - its safer here)

trav777's picture

really, wtf could have been done???

You think you can replace the people and the system will somehow become viable?

buckethead's picture

I have it on good authority (a contributor's post at Business Insider) that we owe the Bernakster a debt of gratitude for saving the economy.




NoDebt's picture

Right.  Because some quick improv by the Fed in late 07/early 08 will wash away YEARS (decades) of debt/fiscal insanity and make everything shiny and new again.  No unintended consequences, of course. 

We'll all be wishing this Fed stick-save never happened in the longer run.  If too many believe we have an "un-crashable" system we'll just keep driving it into bigger and bigger ditches until we finally find one so big the Fed can't pull us back out.  We're in the late innings of that process, in case you haven't noticed.


buckethead's picture

I thought the sarcasm was apparent... but then text doesn't covey it well. I'll add the '/sarc' tag next time, but that kinda ruins it.

Cdad's picture

Aaaahhhhh...the Chinese chucking "transient" back at Uncle Ben.  Nice...and so OBVIOUSLY TRUE that even a jr. intern to a big wig criminal syndicate Wall Street banker could confirm the "transient" nature of our ridiculously broken markets.

But let's go ahead and gap the SPY up tomorrow, anyway.  Santa Claus Rally, you see.  And I hear that the fiscal cliff things is almost solved.  Oh, and equities, when compared to bonds, are HISTORICALLY CHEAP.  And no recession next year.  Etc...etc...



That's what we are all going to be after it all collapses.

TomGa's picture

Where have we heard this before? Let's see,  Oh yeah, NYTimes article published in April 1930 titled

 "Cheap Money a Costly Panacea"  

"Cheap money is a stimulant, but also an intoxicant," the article warned. "If the dose is large enough, a very substantial temporary effect can be brought about, but the headache will follow. It is not the way to do it. It is a costly means to buy temporary prosperity."

-- Special to the NYTimes, April 13, 1930, p.9

The article  warned that the 1930 Fed's pumping of cash into banks would quickly be used by bankers to speculate in the markets and for capital appreciation, rather than being directed to business loans for the purposes of re-igniting the productive base of the economy as intended.

Yeah, history really does repeats itself.


Article Text:

Dr. Anderson of Chemical Bank Says Remedy for Business Slump is Only Temporary

"Cheap Money is a stimulant, also an intoxicant," warned Dr. Benjamin M. Anderson Jr., economist of the Chase National Bank of New York City, in an address here tonight. "If the dose is large enough," he said,"a very substantial temporary effect can be brought about, but headaches will follow. It is not the sound way to do it."

Dr. Anderson, who is author of several books on finance and economy, said States and municipalities increased their debts with great rapidity in times of cheap money, borrowing more than was necessary because it was easy to do. This, he said, was a costly method of buying temporary prosperity.

Dr. Anderson's Address.

After saying that cheap money was a costly and temporary panacea for business depression, Dr., Anderson said:

"It is definitely undesirable that we should employ this costly method of buying temporary prosperity again. The world's business is not a moribund invalid that needs continuous galvanizing by an artificial stimulant."

"The Federal Reserve System and the central banks of Europe are under heavy pressure from advocates of the cheap money panacea, Dr. Anderson said. The matter is exceedingly simple in the minds of its advocates, he added."

"Cheap money makes good business, firm interest rates make bad business, and the whole thing is in the hands of the Federal Reserve System," Dr.Anderson said. "If the matter really were as simple as this, everybody could be an economist, and only the perversity of the central banks would keep us from being endlessly prosperous. But when we analyze the reasoning upon which this doctrine rests, difficulties present themselves."


"Cheap money will not induce manufacturers and merchants to increase their borrowings in an unsatisfactory business situation, Dr.Anderson declared. He cited the figures for commercial loans as reported by member banks of the Federal Reserve System in support of this contention."

"But if merchants and manufacturers will not use cheap money, he said, speculators will. They will use cheap money in buying stocks, for the prospect of capital appreciation. Security loans of the reporting member banks stood on April 2 at the highest point in history, with the exception of the stock slump period ended Nov. 13 last and the year-end week ended Dec.31."

"In the second place, such methods are extremely costly in their effect upon the quality of bank credit. The ideal employment of bank credit is in financing the movements of goods, in financing short, self-liquidating commercial transactions. We have gone much too far in the substitution of bank investments in bonds, collateral loans against securities, bank holdings of real estate mortgages, and bank holdings of instalment finance paper for the normal bank credit that represents goods in movement and that adjusts itself automatically to the volume of trade."

NYTimes, April 1930