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Central Bank Monetary Policy Enables Us To Put Off Real Reforms
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
This cycle of entrenched interests protecting their skims and scams via central bank monetary policy is self-liquidating.
I finally figured out that the core purpose of central banks' monetary policy is to enable vested interests to avoid desperately needed reforms in the real economy.This might have been blindingly obvious to others, but I finally caught on to the dismaying reality: the only purpose of central bank monetary policy is to keep the bloated, corrupt, inefficient and self-liquidating vested interests of the state-cartel crony capitalism from having to suffer the consequences of real reforms.
Japan ably serves as Exhibit #1 of this core dynamic. The broad narrative in Japan is a template for state-cartel crony capitalism everywhere: after World War II, the system of state-managed cartels was re-instated with modest structural changes. The Central State and bank enabled the expansion of export-sector cartels--an expansion that followed the classic S-Curve of expansion, maturity and stagnation with great precision:
We can grasp just how sclerotic and fixed this system is by asking: how many of Japan's top 20 electronics hardware corporations entered the top 20 after 1946?The answer: none.
Indeed, Abenomics can be properly understood as a last-ditch effort by the state and central bank to avoid the structural reforms Japan desperately needs to adapt successfully to the realities of the 21st century. Alas, these structural changes-- loosening the grip of quasi-monopolies and cartels, writing down unpayable debts, freeing up the labor market, ending the completely arbitrary skims and scams of the entrenched interests currently protected by the Central State--will necessarily crimp or destroy the fat profits these interests have skimmed since 1946.
As a result, the political resistance to meaningful reform is immense. A few of these rigid skims are described inVoodoo Abenomics: Japan's Failed Comeback Plan (Foreign Affairs):
To lift productivity, Japan needs serious structural changes to promote creative destruction, the process of replacing decaying firms with vibrant ones. The sectors of Japan’s economy that face international competition, such as the auto industry, enjoy high productivity. But the lion’s share of the economy is domestically oriented, and much of it is shielded from both international and domestic competition by domestic regulations and cartel-like business practices.
Japan’s milk market isn’t even open to domestic competition. The powerful farm cooperative known as Japan Agriculture uses its stranglehold on distribution to protect inefficient farmers in the main part of Japan by hindering shipments of milk from the larger, more efficient farms in the northern island of Hokkaido. Tokyo turns a blind eye because Japan Agriculture is a powerful electoral ally of Abe’s political party and because rural voters are disproportionately represented in the Diet. A real reformer would scrap Japan Agriculture’s exemption from the Antimonopoly Act, a law passed in 1947 designed to encourage competition, and use the act to crack down on such practices.
The net result of protecting cartels and fiefdoms by lowering interest rates to zero and flooding the financial sector with "free money" is social depression, characterized by the erosion of employment, and a hollowing out of the economy's core strengths:
Since Japan’s rigid labor laws make it nearly impossible to lay off permanent employees in downtimes, companies now tend to fill open slots with part-time or temporary workers, and they typically pay them a third less. Today, 17 percent of Japanese men aged 25 to 34 hold such second-class jobs, up from four percent in 1988. Low-paid temps and part-timers now make up 38 percent of Japanese employees of all ages and both sexes -- a stunning figure for a society that once prided itself on equality.
Trying to "fix" a sclerotic, inefficient state-cartel economy by boosting inflation is another self-liquidating path to destruction:
Since 1997, wages in Japan have fallen by nine percent in real terms. They are expected to continue falling, despite highly advertised wage hikes by a few hundred giant firms whose profits from overseas sales have been artificially boosted by the weaker yen. Abe claims that wages will rise once workers and firms come to expect inflation. In reality, deflation is not the cause of Japan’s problems but a symptom. Trying to cure Japan’s malaise by generating inflation is like trying to cure a fever by putting ice on the thermometer.
Examples of this same dynamic abound in Europe, the U.S., Korea, China, Russia--in effect, every nation with a state/central bank pursuing monetary policies that protect entrenched interests from pressures to reform.
In the U.S., we need look no farther than higher education, sickcare and national defense for state-cartels systems operating to benefit vested interests. The Federal Reserve's policies of zero-interest rates (ZIRP) and free money for financiers have enabled these corrupt, self-serving, parasitic sectors to maintain their skims and bloated cost structure--but at the cost of hollowing out the economy and increasing the risk that the financial Ponzi scheme will collapse in a heap of leveraged phantom assets.
Now the latest scheme being proposed to dodge the needed reforms is to distribute free money from central banks directly to households. In other words, now that all these bloated, corrupt, inefficient cartels are no longer affordable, the central bank will save the day by issuing free money, backed by the creation of debt.
This cycle of entrenched interests protecting their skims and scams via central bank monetary policy is self-liquidating: every nation that pursues this "fix" will find its economy liquidated by financial implosion and the hollowing out of productive sectors to support crony-capitalist unproductive sectors.
The author's conclusion is true not just of Japan but of every nation from Greece to the U.S. to China that is trapped in the self-liquidating cycle of protecting its entrenched elites, cartels and fiefdoms:
Japan will eventually reform and revive. Its tragedy is that it is filled with smart, ambitious, creative individuals who are trapped in once vibrant but now ossified political and economic institutions.
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Yawn. Tell us something new.
he did admit he just woke up
The only thing central banks do is print money and launder it through the futures markets.
http://www.zerohedge.com/news/2014-08-30/its-settled-central-banks-trade...
Apparently central banks haven't heard of welfare. We've been giving money to the unproductive for decades, and it's at record levels now with the easily predictable results
The purpose of Politics (and central banks) is to keep everything the same - NOT to change anything... Duh.
Even Al Franken troubled by Obama's inaction
http://tinyurl.com/pmyy3k2
Russia/China produce, US/EU print, Yea SPX ATH headlines.
Who would thunk that decline would look like BTFATH.
Welcome to the party Chuck. Yes, it is blindingly obvious. Nonetheless, kudos for being humble enough to admit you just figured this out.
But, don't expect me to eagerly anticipate your articles from now on, my half awake wife knew this 2 years ago.
This one's been around ZH so often I think we should just just put it in an archive and mark it "Read this before you post on ZH or your feelings might get hurt by other board members who already know this shit down cold."
I made a neck tattoo of the chart. The gals down at Walmart say it makes me look dangerous.
CHS must've posted the S-curve at least a jillion times. I also don't agree with his last sentence in this particular article. With a gift that keeps on giving like Fuku, Japan's people will be goners, and so will we. :-(
What he said. And don't let the thugs in Ferguson catch you talking about "reforms".
CHS must be a lesbian studies or basket weaving major, otherwise he would know what the terms " x- and y-axis labels" mean. As the graph stands, the S-bend in my crapper has greater significance.
There are only 120,000 state approved gun owners in Japan. Upstart commoners are very severely outgunned ... sooo...they will have to learn to like it.
Reforms?
That would mean banksters and their bought politicians having to work for a living; God forbid!
Why would they reform when they can bleed out entire generations of assets and spit in the face of every decent hard working individual trying to be responsible and care for their loved ones?
Central Banks are evil, a force of the Devil, an insult to every virtuous person who has taken a breath since their founding.
If you don't see Satan plying his wickedness in Washington and Wall Street you are morally blind.
Step outside and smell the decay.
St. Louis Fed paper on low velocity of money and why there has been no recovery (or inflation in Fed speak)
http://www.stlouisfed.org/on-the-economy/what-does-money-velocity-tell-u...
They admit QE and ZIRP have been a failure.
Forget the advice Chuck. The NWO has a madness and is declaring war on everyone. It's time to head for the hills.
Good grief. If somebody who looks at this stuff every day, blogs about it, and has written books about it can just now figure this out, it doesn't say much about the perspicacity of the average human being. Then again, neither did the election of Obama, whom the journalists of the MSM are now starting to realize does not know what he is doing (something obvious to the sensate population back in 2006).
The tide turns slowly around these parts, but hopefully it turns very decisively.
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency For Immediate Release September 3, 2014 Federal Banking Regulators Finalize Liquidity Coverage Ratio
The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency finalized a rule on Wednesday to strengthen the liquidity positions of large financial institutions.
The rule will for the first time create a standardized minimum liquidity requirement for large and internationally active banking organizations. Each institution will be required to hold high quality, liquid assets (HQLA) such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a 30-day stress period. The ratio of the firm's liquid assets to its projected net cash outflow is its "liquidity coverage ratio," or LCR.
The LCR will apply to all banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure and to these banking organizations' subsidiary depository institutions that have assets of $10 billion or more. The rule also will apply a less stringent, modified LCR to bank holding companies and savings and loan holding companies that do not meet these thresholds, but have $50 billion or more in total assets. Bank holding companies and savings and loan holding companies with substantial insurance or commercial operations are not covered by the final rule.
The final rule is largely identical to the proposed rule, with a few key adjustments in response to comments from the public. Those adjustments include changes to the range of corporate debt and equity securities included in HQLA, a phasing-in of daily calculation requirements, a revised approach to address maturity mismatch during a 30-day period, and changes in the stress period, calculation frequency, and implementation timeline for the bank holding companies and savings and loan companies subject to the modified LCR. The final rule does not apply to non-bank financial companies designated by the Financial Stability Oversight Council for enhanced supervision. Instead, the Federal Reserve Board plans to apply enhanced prudential liquidity standards to these institutions through a subsequently issued order or rule following an evaluation of the business model, capital structure, and risk profile of each designated nonbank financial company.
The final rule approved by the federal agencies is based on a liquidity standard agreed to by the Basel Committee on Banking Supervision. The LCR will establish an enhanced prudential liquidity standard consistent with section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The rule is generally consistent with the Basel Committee's LCR standard, but is more stringent in certain areas, including a shorter transition period for implementation. The accelerated transition period reflects a desire to maintain the improved liquidity positions that U.S. institutions have established since the financial crisis, in part as a result of supervisory oversight by U.S. bank regulators. U.S. firms will be required to be fully compliant with the rule by January1, 2017.
###
Attachment:
The Liquidity Coverage Ratio Final Rule - PDF (PDF Help)
Media Contacts: Federal Reserve Barbara Hagenbaugh 202-452-2955 FDIC David Barr 202-898-6992 OCC Stephanie Collins 202-649-6870FDIC: PR-74-2014
Press Release Joint Release Board of Governors of the Federal Reserve SystemFederal Deposit Insurance Corporation
Office of the Comptroller of the Currency For Immediate Release September 3, 2014 Agencies Adopt Supplementary Leverage Ratio Final Rule
The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency on Wednesday adopted a final rule modifying the definition of the denominator of the supplementary leverage ratio in a manner consistent with recent changes agreed to by the Basel Committee on Banking Supervision. The revisions to the supplementary leverage ratio apply to all banking organizations subject to the advanced approaches risk-based capital rule. The changes strengthen the ratio by more appropriately capturing a banking organization's on- and off-balance sheet exposures, and based on estimates, would increase the aggregate measure of exposure across firms.
The final rule modifies the methodology for including off-balance sheet items, including credit derivatives, repo-style transactions, and lines of credit, in the denominator of the supplementary leverage ratio. The final rule also requires institutions to calculate total leverage exposure using daily averages for on-balance sheet items and the average of three month-end calculations for off-balance sheet items. Certain public disclosures required by the final rule must be made starting in the first quarter of 2015 and the minimum supplementary leverage ratio requirement using the final rule's denominator calculations is effective January 1, 2018.
This rule finalizes the joint notice of proposed rulemaking released on April8, 2014, with certain revisions and clarifications based on comments received on the proposed rule.
###
Attachment:Regulatory Capital Rules: Regulatory Capital, Revisions to the Supplementary Leverage Ratio - PDF (PDF Help) Media Contacts: Federal Reserve Susan Stawick 202-452-2955 FDIC David Barr 202-898-6992 OCC William Grassano 202-649-6870
FDIC: PR-76-2014
horseshit...The only liquidity they will have with a derivatives collapse is the piss in their pants.
50 years ago the economy was run by companies that made things...we produced stuff....now the economy is run by CBs....everyone watches to see what they are going to do first...then adapt to their lead....we no longer produce...just play in the paper
Smart folks would consider the actions of 'central banks' individually. The ECB is not the FED. The Fed is moving on to ultimate hyperinflation. The ECB will print what they have to but won't hyperinflate. Notice Draghi is full of bluster but doesn't do what Hollande or the CEO of Airbus demands. He won't just 'get to work'.
The hollowing out is the cannabalization phase. Where the 99% is progressively crushed to support the dying system.
Downhill slope CHS. The topping process is behind us now.
Here is another article that made similar points last year:
http://collapseofindustrialcivilization.com/2013/01/27/the-illusion-of-m...
The Illusion of Money and the End of NatureI believe most people who were paying attention understood that basic problem quite a few years ago, if not presumed that to be the problem, at least a few decades ago. I surely did. However, what dismays me more and more is the increasing certainty that NOTHING CAN FIX THESE PROBLEMS.
OTHER THAN "SOLUTIONS" DRIVEN BY THE MASS MURDERS OF HUMAN BEINGS, AS DEATH INSANITIES ARE PROVOKED BY DEBT INSANITIES, I find it impossible to believe there are any other practically possible resolutions but for things to continue to get worse, faster. That is especially the case because there is no doubt that, BY DEFINITION, THERE ARE NO OTHER WAYS TO DEAL WITH THE LIMITS TO GROWTH THAN DEATH CONTROLS.
The established systems are due to the real history of successful warfare based on backing up deceits with destruction segueing into a political economy based on successfully enforced frauds. "The political resistance to meaningful reform is immense" because it is impossible for there to be sufficient "reforms" within systems that continue to operate their death controls through the maximum possible deceits, in order to back up their debt controls based on the maximum possible frauds.
Even more problematically, the only genuinely better resolutions MUST broaden out their base of comprehending the environmental ecologies, to include industrial ecologies, as well as human ecologies. HOWEVER, INCLUDING HUMAN ECOLOGY NECESSARILY MEANS INCLUDING THE DEATH CONTROLLING MURDER SYSTEMS WHICH ARE AT THE HEART OF THE ACTUAL HUMAN ECOLOGY, WHICH IN TURN ARE WHAT ACTUALLY BACKS UP THE MONETARY SYSTEMS, WHICH CONTROL THE POLITICAL ECONOMY.
Since the existing systems are based on enforced frauds, where the existing murder systems back up the existing money system, through legalized lies, backed by legalized violence, operated by people who are the best professional liars and hypocrites, THERE ARE NO FUNDAMENTAL DICHOTOMIES INTENDED BY WHAT I AM STATING. There is no fundamental dichotomy between natural selection and artificial selection. There are no fundamental dichotomies through the full ranges of the possible death controls. The deeper problems are that any genuine solutions must manifest as the death controls, while the existing death controls operate through the maximum possible deceits, in which the both the established systems, and the controlled opposition groups, operate through the same basic bullshit social stories. There can be no adequate "reforms." There can only be things automatically getting worse, faster, until there are some form of revolutions, which change the real death control systems. Furthermore, IF "we" survive through that, then whatever new systems emerge must necessarily have their death controls at their core.
Central bank monetary policies are due to the ways that the best organized gangs of criminals were able to apply the methods of organized crime to capture control over the biggest forms of organized crime, governments. Furthermore, those governments chartered corporations, which have been spiraling around to become an Ouroboros of Incorporated Robbery.
The deeper problems are that not only do those established systems depend upon deceits and frauds about what their real nature is, but also their controlled opposition groups continue to operate within the same frame of reference. The established systems of enforced frauds are driving their own mad self-destruction, due to the basic contradictions present that enforcing frauds does not stop them from still being false. However, the "other side" of the more radical truths MUST have new death controls, to back up new debt controls.
I repeat the obvious, that there are no possible "reforms" to the established systems which could ever become adequate, since the foundations are rotten. There must be "revolutions" and those revolutions should primarily be based on intellectual scientific revolutions regarding human artificial selection systems, understood within natural selection systems. There WILL be a continuum of new death controls emerging, primarily first as death insanities. The deeper issues are could "we" survive through that towards better understanding of better death controls?
While they claim otherwise, in many ways Bernanke and the Fed have put America on a path that mirrors the same unsuccessful path taken by Japan. A path that avoids real reform and bails out the very people that caused many of our problems. Bernanke has upped the ante by setting the bailout and money printing machines on high and flooding America and the world with QE.
By selling other central bankers on this solution America has taken the lead in an experiment that is losing traction. Real momentum seems to ebb shortly after each new wave of stimulus and another fix seems to constantly be needed. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/11/we-are-on-path-to-lost-decades.ht...
My God ZH'ers we all know it. “Grow or Die” this is the capitalist mantra. It governs EVERY decision the oligarchs make. As America’s growth years are now behind it, the capitalists must do everything they can, such as extend credit to the unemployed, and barely employed, to keep consumerism (growth) going. America doesn’t need any more cars, boats, motor homes, condos, houses, strip malls, etc, etc. So, it is imperative they keep the lemmings borrowing and buying and that the Fed Bank continues to push equities higher for the wealth effect. It doesn’t matter that the rich are laughing all the way to the bank, millions see their 401Ks soaring and go out and buy more useless crap. It is all they have left to prevent serious social unrest; there is nothing else. Print more trillions of $, as needed.
America is fully built out, and suburbia is slowing going to turn over. The party generated for forty years by Silicon Valley which replaced Detroit as the engine of growth, is ending. Large layoffs are increasing and the insane Bay Area property values will tumble, then a tsunami will sweep across the U.S. Of course, Wall Street hopes dummied-down Americans can be persuaded they will always need new toys. Last year’s I-Phone is no good anymore, go sit in a tent in front of the store for three days and get out the plastic. Tires worn out? You need a new car, get an easy no-qual loan.
The oligarchs had planned for millions of legal and illegal immigrants to create new demand, but the backlash was huge as many Americans without any hope of working again, resented them. To cushion the pain, huge, expensive government handout programs were created. But even those cannot help Joe Sixpack pay for his profligate lifestyle in suburbia with two SUV’s in the McMansion driveway and a boat and jet skis on the side. The inevitable downsizing is coming and will bring plenty of pain. Robotics and computers have left the unskilled and even many skilled, useless, except to flip burgers.
There will NEVER be “austerity” or a balanced budget; this would precipitate an immediate collapse. Interest rates will be near zero for decades. The oligarchs know all too well wars are needed to distract the populous. So, expect lots of drum beating and furious propaganda about how America must bomb its way to world peace and spread “democracy” to everyone. America is always right, and the rest of the world is evil and needs to be corrected. One day America’s MIC oligarchs will push a country like Russia too far and things will spiral out of control.
Trouble ahead? For sure. For now millions are certain the Fed bank actively controls the equity markets. Just a few choice words sends markets soaring. They will push it ever higher and allow a few small corrections from time to time. A black swan event is no longer even considered possible with the Fed omnipotent and 100% in control. Wars, famine, natural disasters are meaningless compared to the power of the Fed bankers. So ZH perma-bears, NO investors will sell with no risk and big reward. But a shock will come, maybe just be a loss of faith in the Fed when they stop being effective. Watching here from a safe distance.