Nirvana, Creditopia, And Why Central Banks Are The Devil

Tyler Durden's picture

Via Hinde Capital,

Central banks are the devil. They are like drug dealers except they administer regular doses of supposedly legally prescribed barbiturates to their addicts. The 'easy money' or 'credit' they create is an opiate and like all addictions there is a payback for the addicts, one exacted only in loss of health, misery and death.

The economic system is an addict, but that system is comprised of banks, corporations, non-profit organisations, small businesses all of which are communities. And what comprises communities, us, human beings - individuals. We are the addicts.

Popular economic academia understates human action in the economic equation of money. It is human preferences that determine our desire for goods and services and so in turn really determines the utility of money. Sadly the desire of the State to control money and administer it like a drug has left our economies unproductive and incapable of standing on their own two feet.

Our reliance on 'easy money' as facilitated by credit has become terminal. Like drug users we continue to attempt to find a heightened state of Nirvana. We continue to hark for the utopian days prior to the eruption of the post 2008 crisis, even though our well-being was fallacious and based on an illusion of wealth paid for by credit - a creditopia. The abuse of credit is what defined the Great Financial crisis and one that still defines our economic system and one which will define a much worse crisis to come.

Central bankers have begun a concerted effort to fight the global debt problem which has been stifling growth as tax revenues merely serve to finance debt servicing rather than addressing the repayment of principal outstanding. Omnipotent governors, Bernanke, Carney, Draghi, Svensson and Iwata or Kuroda (either are likely to replace Shirakawa) are to take a far more aggressive and activist role in pursuing a new framework for growth and inflation by seeking an alternative way to conduct monetary policy. It's called Nominal GDP Level targeting and it is in our opinion as significant a moment as Volcker's appointment to the Federal Reserve governorship in 1978.

Many will recall Volcker's moment was to engineer a swift monetary contraction and deceleration of the money velocity to try and reign in excessively high inflation and stabilise growth. It worked. Today we are witnessing an ‘Inverse Volcker’ moment, whereby the opposite is likely true.

The question remains are they all still ‘inflation nutters' as Mervyn King, the BoE Governor glibly referred to those central bankers who focussed solely on inflation targets to the potential detriment of stable growth, employment and exchange rates.

Are central bankers merely expanding the boundaries of monetary largesse by focusing on a broader mandate and merely evolving the singular variable approach of inflation targeting or have they finally found a solution to eradicating boom bust business cycles? This is a question we need to answer as we are currently witnessing a Central Bank Revolution which could portend severe consequences for prices in our economies - and all the attendant misery that comes with very high inflation.

Nominal GDP Level targeting advocates believe they have a plausible case for a change of mandate by central banks and one which is being gradually adopted, but we believe that like central banks they have misdiagnosed the cause of the crisis by failing to examine the impact of credit creation in our global economy.

Money matters less credit matters more.

Global economies are still credit driven and Keynesian counterfeiting has merely arrested the collapse. The maintenance of heightened credit levels by financing of deficits with 'easy' money is beginning to see prices and output rise in the short term. In the long run only higher prices will remain whilst growth stagnates. A classic monetarist conclusion.

Hinde Capital has provided a long and consistent discourse on the relationship between credit and growth. Policymakers by now may well grasp that sustainable growth is not possible as nations still have an overreliance on credit-based sectors, namely the F.I.R.E. sectors, (Finance, Insurance and Real Estate). This is an understatement as all sectors are now directly or indirectly underpinned by this false mammon called credit.

Once upon a time merely altering the levels of money in the economic system could help an economy expand and contract without creating excessive levels of inflation both in asset, goods and service prices. However as this fiat currency regime has grown older so has the ability of central bank policy to contain large swings in the business cycle.

++++++

It is our contention that central banks feel they need to maintain the balance of credit in the system as it currently stands by adjusting the money supply and monetary velocity (MV) but by doing so they merely circumvent the necessary adjustment in the economic system that comes about by market failure. If they don't allow this failure then any attempt to influence MV will only lead to higher prices (P) at the expense of output (T) in the famous monetary equation MV=PT.

Central Bank's Checklist Manifesto

At Hinde Capital we have attempted to codify both our objective and subjective observations of asset classes over the years and have naturally migrated to a checklist routine to eliminate any behavioural biases that lead to a misdiagnosis of events before an investment decision.

Full Hinde Capital Insight below...

 

The Central Bank Revolution I by

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davidsmith's picture

This is a must read?  It's the same old sermonette ZH posts at LEAST once a day.  Enough already!  

Dr. Engali's picture

You can always go hang out over at Yahoo ms. Smith. I'm sure you'll fit right in with that group of rubes.

CH1's picture

You had me at "central banks are the devil."

TruthInSunshine's picture

The message will be repeated until even the davidsmiths of the world "get it."

Pseudo Anonym's picture

good bye.  dont let the door hit you in the ass.

prains's picture

2 years 21 weeks and you post that out of the gates Dribble Smith, is that a pee stain or are you just a little gassy?

Shevva's picture

Acccording to some they are doing GODs work, they never mentioned it was for the opposite team.

bank guy in Brussels's picture

This was actually a very fresh, damn good important article, something that has been a bit overdue on ZeroHedge

The paper above is the biggest and most thorough presentation on ZeroHedge so far, on the new Central Bank fad 'magic fix' of Nominal GDP Level Targeting ... which the central banks of the world, led most aggressively by Japan, are starting to implement

Rightly or wrongly - and many people think this will work - it is the near future of world economic policy, and it is indeed something 'new', well beyond ordinary QE or money printing, or neo-Keynesian loading up with 'stimulus' debt ... it really has not been tried yet, so we are all 'assuming' if we claim it won't work or will work

One of the many interesting aspects is that NGDP targeting explicity has a bias toward letting sectors and institutions (big banks etc.) fail, as long as money supply maintaining Nominal GDP is cranked

There was a lot of nice detail above, like covering the work of Scott Sumner from his blog 'The Money Illusion'

What is good is that the paper actually tries to cover a lot of this new-fangled 'Market Monetarism', which as the paper notes, is significantly the first major economic school of thought to win favour almost purely out of the blogosophere

Ultimately, though, Hinde Capital is a gold bug financial advisor, and they are much too nit-picky and narrow in their assumptive conviction that NGDP targeting won't work

They go through a big song-and-dance claiming that NGDP needs to be done from some cherry-picked base year - 2007 or something - but that is not really the case.

More sophisticated NGDP views are that you just need to pump the money supply to maintain NGDP a couple points higher than the dominant gov't interest rate (which of course southern European countries can't do, until they finally wise up and break off from the euro-zone)

Hinde ends up just rather insisting that destructive inflation will be the only result of NGDP targeting, but they seem to miss the main point ... it is precisely that kind of Paul Volcker type attention to money and credit supply which NGDP is oriented to addressing

Although Hinde has really rather failed at arguing that NGDP targeting should not be tried ... even Hinde Capital admits it might be the best thing the Central Banks have adopted

But quite good of ZH to print this discussion

If Japan pulls it off with NGDP targeting, we will all know what to do ... if Japan explodes in Kyle Bass flames, well, we will honour them for their noble bravery and sacrifice

disabledvet's picture

"Fed bankers target nominal GDP. Real Bankers target Greece." this was a very good article i agree. it's SHOWTIME in my view. "all the pieces are in place" for some REAL fireworks. "and i'm not talking the market." i'm talking SOVEREIGN MEANING AND AUTHORITY. one thing a lot of people don't know (but i did bring up during 2008 and after) is that the US stock market was CLOSED during World War I. "with volume this low why not turn it off?" is one question i have. it ain't like i'm watching CNBC. (though i do miss Maria B and still want to sleep with her. Or is it "she wants to sleep with me"? i'm easily confused. Speaking of which is Burnett pregnant yet? How's the "action Jackson" going on that front?) http://www.youtube.com/watch?v=gWubhw8SoBE

prains's picture

Bank Guy thanks

how does japan pull it off if Bass is wrong? (not a snarc just a question)

Notarocketscientist's picture

"If Japan pulls it off"

Are you fucking NUTS?  What do you think Japan has been doing for 20 years now? 

So maybe this time.... or may if they just print more ... it might work.

Are you Paul Krugman hiding behind an alias? 

Look mate - 1 + 1 = 2.  You cannot make the circular block fit into the square hole.  And when you drop an apple - it falls - it does not rise - it falls.

And when countries are drowning in debt - more debt is not the answer.  It certainly helps kick the can when you haven't massive debt loads but IF you, year after year after year, keep trying this strategy it will catch up to you.

And it has caught up to America (and many other countries).

So now having exhausted that INSANE IDEA that you can run up debt forever - we PRINT.

And retards are suggested OH THIS MIGHT JUST WORK!!!

I say again.  ARE YOU FUCKING NUTS!!!!

I can see how you can get growth out of debt (up until the point you reach insolvency)- but for the life of me I cannot see how you can get growth out of money printing. 

And if I am wrong - and Bernanke has created a perpetual motion machine - he deserves the Nobel Prize for Economics - and I will eat a bowl of steaming shit

But of course I am not wrong - there are many examples of other RETARDS who tried to print their way out of collapse.  And every single last one of them failed.

Whiner's picture

Those buyers of FRNs will soon say, " you mean you're gonna pay me back with those soggier, wartered-down, fiat greenbacks? No thanks. Think Ill dump what I got and buy a mine or two or some farms." Then what do you target?

prains's picture

Hey Fuckbubblescientist

take your 26 weeks and pull it out of your ass toss it on the barbee and dine on some swine shit for brains.

FIRST OF ALL YOU HAVE NO FUCKING IDEA WHAT THE QUESTION WAS AS YOUR PAGE VOMIT SO ARTFULLY DEMONSTRATES

 

The question relates to what Bass has been saying for a couple of years now but obviously you have no idea with your 26 weeks handle what I'm talking about.

 

Pull you cock out of your ear and listen up youngster

 

 

S.N.A.F.U.'s picture

It's just pathetic the way the functionally retarded resort to unsupported ad homs against other people's intelligence, while making the logical fallacy of acting like the recency of someone's registration with ZH is a sound argument of their inferiority, and while being here over a year and still not figuring out how to follow a damn thread.  (Notarocketscientist's post was a reply to bank guy's post, not yours.)

prains's picture

nitwit

 

look at his thread again and pull your cock and your fist out of your ear

MeelionDollerBogus's picture

Jim Rickards actually addressed NGDP targeting for the Fed, and therefore all central bankers in chain reaction, while this approach from Davies looks at the Fed as not being first to this particular trough. I listened to the KWN podcast probably 12 to 14 months ago.

ISEEIT's picture

If you're looking for online entertainment you might check out http://krugman.blogs.nytimes.com/ . That or you could go to http://www.whitehouse.gov/

Options are available.

 


 

espirit's picture

Game on.  The low hanging fruit has been picked.

blindman's picture

but ...
that is the "beauty" of the public/private arrangement,
why the fed is of private ownership with the guise of
public function and "satisfaction".
.
first fiddle
http://www.youtube.com/watch?v=OF6m3pq-Rfw&list=UULwXLS-KHDAABP02xEzplsg...

ramacers's picture

all the better for rivers of blood. gotta happen.

Pseudo Anonym's picture

no, not true that

Central banks are the devil.

hofjuden running central banks are agents of the devil

otto skorzeny's picture

judefetzen verboten herr kommissar

Pseudo Anonym's picture

ja voll.  ich schaue vorwärts zu kristallnacht.

CH1's picture

Really? That's the best you can do? That's what's supposed to stop us from discussing central bankers?

Sunstein overpays you.

otto skorzeny's picture

the agents of Mossad have awoken. what the fuck is a sunstein?

seek's picture

edit: just discovered ZH history is stopping at 2.5 months ago, nm.

MeelionDollerBogus's picture

I think you’re misunderstanding what that fairly racist term means. First of all, it implies positions of influence & perhaps destruction in Imperial courts. You’d be hard pressed to find those true imperial courts. Second it implies pretty much those Jews have only one lifeline – to remain useful – while in the COURT of a King who is not a Jew.

Even the Nazis were actually shocked at the initial release of that book, you know. That’s right, the Hofjuden book was so racist it made NAZIS blush the first time they saw it.

nmewn's picture

Borrow & spend!...we have created all this for you comrades!...spend like there's no tomorrow!...people will die if you don't spend!...800,000 lepers will be thrown in the streets if you don't SPEND!!!

jballz's picture

Borrow what from who. It's all a fucking illusion. Go make some.

Emo bitchez.

nmewn's picture

I'll take it from you...excuse me...just borrow ;-)

What are your terms? Do I have to pay it back...plus interest or will YOUR children (assuming you're capable of caring or wanting any) have to pay it back?

jballz's picture

Emo investor's we have a winner!

What rhymes with razor blade?

It's all so sad.

I wish it was the olden days when kings deflowered your daughters and then they died from cholera.

This whole era of everybody sitting around jacking off and reading blogs after a solid four hours if fucking off at their paper pushing service jobs, it has to end.

Bring back the monarchy!

Sorry emos, carry on.

:(

Dr. Engali's picture

Let's see we are getting ass raped by the central bankers, dying from the toxins in the food and drink, all while our "representatives " live like kings and queens.

Not much has changed since the days of the monarchy... just a different group of people doing the fucking.

q99x2's picture

There are more queens now than back then when the fair ear hair was stuck in the right rear wheel well.

Cathartes Aura's picture

and a different group getting fuck't. . . everyone gets a turn, in the end. . .

Notarocketscientist's picture

Now if I were online.... and I wanted to jack off....  I think I could find better source material that ZH. 

 

This one's for you Bud!  http://www.hornyasianladyboys.com/wp-content/uploads/2012/10/13.jpg

ShortTheUS's picture

Central banks are the devil and teh Bernank is Chairsatan..

PUD's picture

Not really true. There is no distinction between money and credit...credit is money and money is debt.

That is the sole problem, the only problem and there is no policy aside from non debt based money that can ever hope to save the system

Volker did not save the system nor did his policy work. It delayed the inevitable. Nothing more

So long as gdp equals an increase in money/credit supply and all money is debt and all debt carries interest....the absolute anti miracle of compound interest will work like poison on the system until peak debt/death results

This is no more a central banks fault as it is the general population who willingly adopts the fraud that credit equals money and the illusion that pulling forward demand is real growth in wealth

There are too many words wasted on blame and too few on the real fundamental issue...the system of money as debt.

No policy will fix this. It's a math problem, and exponent problem and compounding interest on money/debt problem and nothing else

NoDebt's picture

Agreed, it's a problem and one that will happen again and again.  I see no great concern in that.

The real problem is when you have the hubris of our current "leaders" who think they can stop it from ever happening again.  The minute they started anointing certain banks and institutions as "too big to fail" and back-filling all lost demand with mountains of government spending, we were sunk.

The ability to fail MUST remain part of the system for the system to survive.  They're trying to create a world where nobody ever dies.  Nice for a short time, but the worst possible curse in the longer term.

 

otto skorzeny's picture

I thought Chavez said W was the devil because he smelled of sulfur and all that other crazy shit.

Dr. Engali's picture

The devil takes on many forms.

Notarocketscientist's picture

The Real Devil?

 

When discussing Israel we need to look at the root cause of the conflict - have a look at this video The Israeli General's Son – the video Israeli does NOT want you to see was made by the son of the general who lead the 73 Israeli offensive - and later turned against Israel's foreign policy

A real eye-opener, pass this around http://www.youtube.com/watch?feature=player_embedded&v=TOaxAckFCuQ

Whiner's picture

"there is no historical proof that King David ever existed (outside The Bible-which is not a historical document)." What a yo-yo. Had to turn it off at that point.

Dr. Richard Head's picture

The idea that a small group of people can tinker with this candy cane money button or that pixie stick interest rate lever and will be able to "moderate" the economy of some 300 million people is impossible unto itself. All else is circling the edges of the toilet.

Seasmoke's picture

All dealers know. Do not use the merchandise.

reader2010's picture

No, you've got it upside down. It's the modernity, aka capitalism, that created the central banks as we know it. In other words, central banking is one of the essential devices required for the modernity to function. 

marathonman's picture

Privately owned central banking is pretty far removed from free market capitalism.  It is a cartel or monopolization for the member banks that control the central bank.  Without monopoly control of legal tender laws, they fail.

Prairie Dog's picture

"Sadly the desire of the State to control money and administer it like a drug has left our economies unproductive and incapable of standing on their own two feet."

So all those billions of people who go out every morning and dig rocks from the ground, plant seeds in the field, assemble ipads in factories, design software apps, deliver mail, serve food, provide foot massages, build houses, teach children, sweep the streets.... all this is unproductive work, because it's financed by easy money? Whodda thunk it?

Hinde Capital needs to calm down. It should also learn the difference between reign and rein.