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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Maos Dog's picture

Yes, Prairie Dog, this is EXACTLY the point!

Easy money effects all business decisions. You can't make a correct decision on the productive use of capital in this environment, when credit is easy, business does not put enough thought into it's investments. Malinvestment becomes the norm. 

Just two examples from what you mentioned above (but trust me I can go on and on about this topic):

Is the creation of an ipad a productive activity, when the funds used to purchase the ipad come from student loans and other easy forms of consumer credit? Whats the real return on the money spent on an iPad? Whats the real return including the interest you are now paying on the loan to buy the ipad? What if the only reason there is any demand for this product at all is becuase of easy credit? Could this money spent be put to more productive use? 

You mentioned build houses. Really? You really think building a house is a productive activity with the current shadow inventory? But the easy credit market makes it possible for builders to create new houses in this environment. 


Lord Of Finance's picture

They are the devil, but David Hasselhoff is the anti-christ. Not convinced? Check out:

e_goldstein's picture

That's really twisted... I like!

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 - and deserves the Nobel Prize for Economics.

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.

dognamedabu's picture

IDK  seems to me that the Fed is buying up PD holdings of bonds using printed fiat to do a few things. Give its owners, the PDs, liquidity and to transfer the risk to the Feds balance sheets. Then once the time is ripe put the enevitable default onto USD holders by blowing up the currency and Fed with it.Who walks away the winners? Asset holders ie the Feds owners. Then after the dust settles asset owners ie old Fed owners create new world reserve currency and own the whole game once and for all.

dognamedabu's picture

I say this because we (you know, people who pay attention) know this is a train wreck. We are in their realm. Manipulation is their God.

So I ask myself, what is their plan? They have to have one Imo. They are not stupid. They sound stupid but it has to be a ruse. They have a plan and man I for one do not want what they are driving towards. It's sadistic. It is nothing short of complete facsist control of everyone. All it takes is a bit of planning and alot of propoganda.

Vooter's picture

There's no freakin' plan. They're just pigs. They need to be exposed and eliminated...

Kirk2NCC1701's picture

If an overly simple, linear equation of MV=PT and phase delay is what la-la-land economists and bankers use, it's a miracle that the real world isn't more messed up than it is.   No doubt Maxwell's equations from over a hundred years ago would make their heads explode.  There's more active and adaptive information-processing and computational ability in a micro-chip than in the combined theories of these pseudo-science clowns.

If we follow Napoleon's advice to 'kill all the lawyers', and then proceed to economists and bankers, we can culminate it all with Diderot's advice to 'kill the last monarch with the entrails of the last priest'.  Metaphorically speaking.... as a means of conveying the total uselessness of of the types of people.

honestann's picture

Please change "uselessness" to "destructiveness".

StychoKiller's picture

MV = PT is by no means linear, more like at least 3 of those variables are independent of each other.


honestann's picture

Sadly, the predators-that-be and predator-class banksters don't just hurt their debt slaves.

Everyone who is frugal and avoids the debt-scam has to pay vastly inflated prices for most goods, plus vastly inflated taxes.  And they get SQUAT for saving... any interest they receive for savings is a tiny fraction of the actual inflation rate.

The only ones who gain from fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-mania is the predators-that-be and predator-class.  PERIOD.

bilejones's picture

The purpose of government is the looting of the governed.

The purpose of the Fed is to transfer wealth to the banksters.


Why these simple truths are not told in the government run schools is beyond me, Oh, wait......

MagicMoney's picture

Ahahahah Market Monetarism. Peter Schiff had a debate with the editor of National Review, a conservative magazine where the editor said the Fed was too tight. ROFL.... Just more mumbo jumbo from mainstream economist creating a theory which the next day will be replaced with another theory. Mainstream economist treat economics like a empirical science. Like you can prove transactions between two people on a certain specific trade as empirical, repeatable falsifyable truth.


Federal Reserve is basically doing what it has always done. Remove purhcasing power, misallocating resources, and creating a phony economy. A real economy is based on savings, and investment, consumption is a by product of all that, instead we have a dysfunctional economy where consumption, low productivity are encouraged. Purchasing power is a economic growth. The ability to accumulate capital. Creation of cheap credit distorts that.


Interesting read on some spots providing history, and the dollar reserve currency coming into being. I already knew this, but some people don't.

falak pema's picture

fighting private banking fire n money power with central banking unlimited fiat power; yep, targetting the Templars' financial rule with state power.

New game in town...When state oligarchs and private oligarchs match up; as both cannot survive, one pillar has to fall. 

Who else but the state to save the world from Corporate Combine, even though the state is incestuous as hell with those very private sector czars.

If the US ship cannot survive maybe the meme will be repeated until the corporate fire has been doused and the hundred headed hydra cauterised, slain worldwide.

And then where?  

The United states of one party politburo governance?

Lol, We will all bow to the Chinese model and eat our hamburgers with noodle sticks! 

Quinvarius's picture

This is going to end with man capitulating to economic law and gold rising to back all this paper, or man self immolating out of spite and gold replacing all this paper.

TK69's picture

The real problem is that too many people want their neighbors to pay for their benefits.  And this can't be done without inflation.  And this means that people wont stop until there is some kind of default, one way or another.

Republicae's picture

Washington, D.C.s response to the People: Laissez-les manger le gâteau

Republicae's picture

"Hyperinflations are always caused by public budget deficits which are largely financed by money creation. If inflation accelerates these budget deficits tend to increase "(Tanzi’s Law).

Republicae's picture

Bankruptcies of governments have, on the whole, done less harm to mankind than their ability to raise loans.

—R. H. Tawney, Religion and the Rise of Capitalism, 1926

Herdee's picture

Greenspan's little money printing experiment after 911 dumped so much money into the U.S. and elsewhere causing the U.S. housing bubble and other problems.If you think that was a taste of inflation,you ain't seen nothin' yet.