Are Central Banks Out of Options?

Phoenix Capital Research's picture

The Central Bank interventions of the last five years can be broken into two categories: actual monetary policy changes and verbal interventions.


The period from 2009-2012 largely saw Central Banks engaging in the former. The only problem is that two primary monetary policies in Central Banks arsenals (cutting interest rates, launching QE programs) are either useless in combating solvency issues or have little to no effect in terms of generating growth.


Regarding the first issue, if you are insolvent as most of the large banks in the world are, the ability to borrow more money at lower interest rates is of next to no value. If you’re leveraged at 26 to 1 or higher, borrowing more money accomplishes nothing when your equity is wiped out by a 4% drop in asset prices.


Regarding the second issue (QE’s failure to generate growth), consider that both Japan and the UK have engaged in QE policies equal to or greater than 25% of their respective GDPs and have failed to generate a significant uptick in their GDPs or employment.


Moreover, the positive aspect of QE, the alleged “wealth effect” or the belief that individuals would spend more money based on higher asset prices, can quickly become a political issue as it is largely the top 1% of individuals who benefit most from this.


As a result of this, beginning in 2012 Central Banks began to move towards using verbal intervention more than monetary policy. After all, if you can get the positive benefit of QE (higher stock prices) without actually having to do anything from a monetary perspective… why engage in QE at all?


The Fed bucked the trend in 2012, launching QE 3 and QE 4 to boost Obama’s reelection chances. Since that time, every positive move the Fed has made has been verbal in nature (promising to maintain low interest rates, etc.). In terms of monetary moves, since that time Fed has been actively tapering QE.


However, we may be reaching the end of efficacy even for verbal intervention. Consider that Mario Draghi managed to kick off a two year rally in stocks and two year drop in bond yields in Europe simply by promising to “do whatever it takes” in mid-2012.


The ECB didn’t implement any new monetary policies until June 2014 when it cut interest rates to negative. Since that time, EU markets have largely sold off. And when Draghi mentioned that the ECB was “considering QE” in yesterday’s press conference, the intraday rally was short-lived. In simple terms, the markets want Draghi to act again, not simply engage in verbal intervention.


So, globally interest rates are at ZERO or even negative and the markets have realized that QE doesn’t do much. What exactly does this leave for Central Banks to do?


Not much. The question is when the markets realize this…


This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at


This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.


Best Regards


Phoenix Capital Research





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RaceToTheBottom's picture

Belgium was real, the future Belgiums will be just as real.  Real money will be spent, not just pontificating.


Lordflin's picture

'Are central banks out of options?'

Not the Fed... it still has the DHS.

Comte d'herblay's picture

The Real mission of Bernanke, and now J Yell was to exploit the window of opportunity that 2008 presented to the Jewish Mafia on Wall Street. TARP, Maiden Lane I and II and shit you never even heard about, gave Lord Blankfein and his henchmen a once in a lifetime chance to obtain trillions of FRNs for doing nothing but picking up the phone and telling Ben where to send it.

Those who think that CBs are doing god's work, carrying out their chartered mission, fell asleep in 1914.


are we there yet's picture

My main supplier just raised his rates 15% after having raised him about 20% a year ago. That's inflation to me.

AdvancingTime's picture

 It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward.  When this happens we are at the end game.

At some point the return on loaning money is simply not worth the risk!  Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.

smokescreen's picture

Can someone tell me when QE 4 started...crap I quess I missed it??

RaceToTheBottom's picture

By the time of QE4, most people got the game and referred to it as QEn or QE to infity and beyond.

GreatUncle's picture

QE is not a one off.

Tthis money creation process has been going on all the time just it was hidden.

UK government has pushed this money creation process back into the shadows.

The USA is attempting the same.

Inflation once you are consuming all that you can is a refelection of this mony creation process.

tempo's picture

zero sum game over time, initially zirp triggers housing and stock market recovery but others lose an equal amount of interest income. Now the buzz of low rate mortgages is over and all we have left is millions w no interest income and drag on the economy. Same w massive student loans who largely waste time and are now have staggering debt that keeps them from buying a home. It was fun to send millions to college, now many have part time jobs and we are left w overpaid college professors and greatly inflated college costs. As this unwinds, it also will be a drag on the economy because of mal nature of the trillions spent.

blindman's picture

i can not say.
crap is old like the hills.
i wonder how many trillions,
capital T, of Q (quantity)
are required to call it
"big money"?
i'm not sure how anythingmuch in the
universe could beat this?
i was looking for pete anderson
"big money" but this other thing
arrived. the twist of fame?
the price of entry? the limits
of market availability? the state
of the union? the nature of
the beast? the lost moments and
potential of exposure and
obscurity? the message of the
" tears in rain" he said about
where is your poet?
where is your poet?

cartonero's picture

We are witnessing the crash of supply side economics. The extremely flawed concept was that if the fed threw money at the corporations they would invest in productive capacity, which would fuel demand. The corporations did, but first in Japan, then Korea, then China ... and our jobs went with the investment. Now there are not enough jobs left here to fuel demand, which is the true source of economic activity. You can cut interest rates all you want, but if borrowers have no means of repaying, the economy is dead in the water.      

FrenchRevolutionary's picture

Supply-side economics has as much to do with lower tax rates for individuals and small businesses as it does with lower rates for international corporations.

Outsourcing is more a product of politicians and crony corporations conspiring to undermine the American worker and middle class (just like the current immigrant wave); a failure to impose TARIFFS and other import restrictions is the problem, not lower taxes and smaller government.

Duc888's picture




So you mean piling on debt is not "growth"?


Who knew?

TeethVillage88s's picture

If Liberals Take all the Tools off the Table in terms of Capital Controls, Tariffs, Off Shore Tax havens, Capital Flight, Stagnant Capital, Economic Leakage, Tax Loopholes, Tax Policy, Fancy Pants Derivatives,... then maybe we need to Lynch the Economists, Bankers, and Politicians that put us here, kick out the Neoliberals

Simplify & Standardize:
- GAAP Accounting Rules
- Standardized Financial Instruments that a 13 year old could understand
- Individual Income Taxes
- Corporate Income Taxes

Just think all those "No Value Added" employees in Bookkeeping, Accounting, Taxes, Financial Planning, Tax Lobbying, tax Law, Finance Law... they could be free to add to our Great USA in a meaningful way that adds to GDP.

FrenchRevolutionary's picture

I would have to imagine that that entrenched bureaucracy is part of the reason tax reform is so difficult..