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How Central Banks Have Broken Fiscal Policy In One Sentence
By now, and certainly in the aftermath of the embarrassing US government shutdown, it has become clear to everyone that fiscal policy is terminally broken as a process through which to reform and fine-tune the economy. But far from affecting only the US, fiscal policy has failed miserably to encourage structural reform in virtually all broken European states, the bulk of which reside in the periphery but increasingly more France and also Germany. Why? A very simple reason: the Fed's shotgun monetary policy, which is rising the stock market to such unprecedented heights, it allows politicians the loophole they need to justify their irrelevance, and impotence. After all, if stocks are up who cares if the US doesn't have a budget for over 4 years. or if the Italian debt/GDP ratio is rising at a record pace, or if Spanish bad debt is accumulating at breakneck speeds, or if Greek youth unemployment is 60%+. Hey, look over there stocks, are up.
In short: if you want to blame someone for the complete breakdown in fiscal policy and the political negotiation process, blame the Fed. That much we made clear back in 2011 when instead of forcing Europe to deal with its issues on a fiscal basis, the ECB stepped in with the LTRO bazooka (and subsequently with Draghi's "whatever it takes" uberbluff) and made any structural reform unnecessary. The same has since happened in the US with QE3 and in Japan with QE Bazooko Circus.
But for now, while this decision-making hijacking process by the central banks, was largely implied, it was never explicit. Never, that, until this Friday when Italy's Prime Minister Enrico Letta came under fire from all sides over his 2014 budget proposal, which critics say has failed to attack deep-seated problems such as Italy's suffocating tax rates and lack of growth. In other words, yet another example of fiscal reform failing to promote long-term economic policies. The WSJ has more on the latest Italian budgetary failure:
Fresh from winning a confidence vote that many believed would strengthen his government, Mr. Letta was attacked by both Italy's business lobby and its unions, while former Prime Minister Mario Monti resigned as head of a small, centrist party that supports his government.
Mr. Monti criticized the budget's "timidity" in cutting taxes, a complaint echoed by business leaders.
Labor unions complained that the budget failed to extend unemployment benefits for the hundreds of thousands of workers who have been laid off during the downturn or may be next year. "Trying not to displease everybody doesn't mean pursuing the national interest," Susanna Camusso, head of CGIL, Italy's largest labor union, said.
Italian businesses pay an effective tax rate of about 68%, according to accountancy PricewaterhouseCoopers, when payroll taxes are included. Such taxes, which are almost as high for wages, produce a lose-lose situation in which companies are loath to hire and the net pay that employees earn is quite low.
The budget would cut overall business taxes by €2.7 billion ($3.7 billion). About €1.5 billion of that would go to workers in the form of lower payroll costs. But the monthly impact on the average wage earner would be worth little more than the cost of a pizza.
But however bad the proposed Itlaian budget may be, and no matter how bad, it is still orders of magnitude better than the US, which is simply unable to pass a budget, let alone one which balances, that is not the punchline. This is:
Economy Minister Fabrizio Saccomanni, a former deputy governor of the Bank of Italy, acknowledged that "more could have been done." He said political squabbling had complicated the government's work, but pointed out that that the budget keeps Italy's deficit below 3% of gross domestic product, as European Union rules require.
"Everybody hates this budget, but the stock market is up and the spread is down," Mr. Saccomanni noted.
And there you have it: no matter how bad, or non-existent a budget, a political compromise, a political proposal, a government shutdown, or a debt default threat... the market is up.
Why is the market up? Because between the Fed and the BOJ alone, some $160 billion in liquidity is created de novo each month, pushing assets to record prices around the fungible globe. Which simply means that since there is no feedback loop anymore to inform politicians that their decision-making process is just a broken, there is no impetus for any change.
And the biggest paradox is that it is the Fed whose various presidents, complain almost daily how they would promptly taper if only Washington would get its act in order, in the process proving the Fed has zero understanding of how a reflexive market process works. Because it is not Washington that is to blame that it is broken, it is the Fed... and the ECB... and the BOJ, whose monetary flood has made fiscal policy irrelevant, meaningless and moot.
The problem, obviously, is that once the Fed has no choice but to start easing off the Koolaid, whether that means S&P at 2000, 5000, 10,000 or much more, only then will the market finally awake to years of pent up fiscal policy mistakes but courtesy of the inflationary inferno that the very same central bankers will have created, there will be nobody to run to.
But that's in the future. For now, all that matters as Mr. Sack-O-Money put it, is that "the stock market is up." Nothing else matters.
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If it's not too much to ask.....would you print me some money?
Just figured it wouldn't hurt to ask. I promise I won't blow it on hookers and cocaine. Probably just buy some gold...and some outrageously expensive healthcare.
Don't forget the Fed backed LTRO1 with $.5T of swaps.
It was the end of any semblance of a real market and price discovery.
Then came moar with another LTRO, other operations and the long farce of the Greek ISDA default denial debacle.
The LTRO I and the Fed swap was like Bush/Paulson TARP as far as the sham "market" was concerned.
Who knows what other crap they did.
The new 100 $ bills are funky. They do not even look real.
I would be cautious here, those bills are not meant for domestic consumption.
.. my bank got them right away.
My bet is that they have tracking and listening devices embedded in them. Since it is a high denomination bill, one might say that they won't be held by the masses but once real inflation takes hold, the $100 bill will be like today's pennies. Everyone will have plenty and not know what to do with them.
"[T]racking and listening"?! You might, just might, be able to get an RFID chip thin enough to fit into a bill without being immediately obvious. But listening, or more active tracking (GPS, position reporting, etc.) would require orders of magnitude more processing, not to mention a power source. Science fiction, for quite some time yet.
Naw, nothing like that. But they do change color and call the police if they are used to snort cocaine....
Indeed, they're Unreal ...
Created out of nothing, backed by nothing but faith and credit (debt), worthless except for almost universal acceptance by fewer and fewer States, and requires a suspension of reality in order to understand why the Federal Reserve SYSTEM is allowed to continue.
Perhaps the new Hundred$ will become the new Dollar in the upcoming inflation.
If dollars aren't going to be worth anything, what should I hold? Euros?
CNBC has your answers.
As the dollar continues to devalue,each new variation of the currency looks a little bit more like Monopoly money. It's funny how it resembles a third world banana republic currency...very telling.
It's always follow the positive news that day. We can't afford no more downers.
You gotta hand it to the banksters though. With all the currency and digits they are 'bazooka-ing' into the economy, they are holding down inflation, or are at least telling us it is staying under 2%.
Go to Walmart.....you'll find it.
I obtained a new $100 FRN. showing to people the first reaction was Laughter..the gut always tells the truth.
Mr. Franklin looks pretty good, but that security ribbon makes it look like he's behind bars, and all the orange and over-sized "100"'s makes it look like Americans need help reading numbers (like $17 Trillion).
At least this asshole is honest
Policy = print money on the taxpayers back.
Fiscal = that carmaker that went out of business (?).
The central banksters have one purpose, it's to transfer wealth to their cabal.
Either faster or slowly.
It's the stock market, stupid.
That "stupid" shit was already offensive when Carville said it the first time. Fuck you.
Mr. Sack-O-Money? Sack-O-Manure is more fitting.
The symbiotic relationship between politicians and central banksters has been obvious for a while.
One pays banksters for criminal incompetence and large self directed bonuses; the other uses funny money to avoid fiscal responsibility.
But don't worry, you get to pay for the results of both....
1. They're not creating "money". They're creating CURRENCY. Their currency is far too 'leaky' to be a "store of value" -- which is one of the properties of real money. Please do not use/regurgitate their Jedi mind-trick in terminology, or you are aiding & abetting their epic deception and fraud.
2. Too many people and sheeple have the Fox Mulder Syndrome (just made it up): They WANT to believe. This makes their job a lot easier.
That's why I've long called this the Tinkerbell Economy. Repeat after me, "I do believe in fairies. I do, I do, I do."
See? All better. Now go to work and consume.