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Inside The Minds Of Central Bankers
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,
NPC Ford Motor Co. coal truck, Washington, DC 1925
I think I should come back to what I wrote yesterday in The Revenge Of A Government On Its People, because in my view the essence of that essay deserves far more attention than I see it get, either in reactions to my piece or in the financial press as a whole.
That essence is that, as reported by Reuters yesterday morning, Bank of Japan Governor Haruhiko Kuroda, in a speech at a seminar, stated that last Friday’s surprise QE9 measures were a reaction to one thing, and one only: falling oil prices. This was not announced on Friday, and nobody is addressing it now, though it is a crucial piece of information. First, here’s Reuters:
BOJ’s Kuroda Vows To Hit Price Goal, Stands Ready To Do More
“There’s no change to our policy of trying to achieve 2% inflation at the earliest date possible, with a roughly two-year time horizon in mind ..” [..] “There are no limits to our policy tools, including purchases of Japanese government bonds .. ”
Kuroda said while inflation expectations have been rising as a trend, the BOJ decided to ease to pre-empt risks that slumping oil prices will slow consumer inflation and delay progress in shaking off the public’s deflationary mind-set.
“In order to completely overcome the chronic disease of deflation, you need to take all your medicine. Half-baked medical treatment will only worsen the symptoms ..” While he stressed that Japan’s economy continued to recover moderately, Kuroda said falling commodity prices could be risks to the outlook if they reflected weakness in global growth.
That is to say, plunging oil prices scared Kuroda to such an extent that he couldn’t even wait for their effect to play out. He felt sure about what the effects would be: more deflation, aka less consumer spending. Kuroda was convinced beforehand that the Japanese people would not use their ‘oil savings’ to make alternative purchases, he very strongly suspected they would keep the savings in their pocket. Well, not if he can help it. As I wrote:
You would expect falling oil prices to provide the Japanese, like Americans, with some very welcome, even necessary, financial breathing room. But PM Abe and BoJ’s Kuroda will have none of it. And no matter how you look at it, there’s something at best curious about a central bank that decides to throw ‘free money’ at an economy BECAUSE it sees falling resource prices, which would supposedly make money available already.
Kuroda makes money available to the system because he is afraid, make that convinced, that other available money, from lower gas prices, will not be spent ‘properly’. He doesn’t have faith in consumers’ contribution to inflation/deflation, even if they have more money available. So he launches another step of QE, which he knows will never reach consumers, to keep deflation at bay. There is something very peculiar about all this. Where does QE end up? Here:
• BoJ’s Surprise Easing Showers Wealth On Japan’s Top Billionaires
The Bank of Japan’s unexpected stimulus has already made the country’s richest even wealthier, adding more than $3 billion to the four top billionaires’ net worth. Fast Retailing Chairman Tadashi Yanai, Japan’s richest person, saw his fortune grow by about $2 billion in the three trading days since the central bank’s Oct. 31 announcement that sparked a plunge in the yen and a rally in stocks. While billionaires such as Yanai gained, the central bank’s unprecedented asset purchases to support economic growth have yet to show evidence of spreading beyond Japan’s wealthiest people and corporations.
What consumers see of this is that since Kuroda’s QE9 ‘policy’ is aimed at sinking the yen, oil becomes more expensive for the Japanese people. A shrewd way of denying people the benefits of lower oil prices, while at the same time enriching Tokyo’s elites. Kuroda – and PM Abe’s – own stated goals are more important than the people of Japan who are supposed to benefit from these goals. They’ve sworn to raise inflation rates to 2%, and you better not stand in their way. If Japan doesn’t get rid of the duo, and fast, even crazier ideas will be tried out. And the game doesn’t stop there. Europe, too, will be affected:
Kuroda Has Draghi in a Bind as Euro Soars Against Yen
Mario Draghi has something new to worry about as he prepares for tomorrow’s European Central Bank policy meeting: the euro-yen exchange rate. The yen approached a six-year low versus the shared European currency after Bank of Japan Governor Haruhiko Kuroda surprised investors late last week by extending his record stimulus program. Kuroda’s actions jeopardize the weaker euro that analysts say Draghi needs to reflate the economy, heaping pressure on him to come up with a policy response. “Kuroda has thrown down the gauntlet to Draghi,” Robert Rennie at Westpac Banking Corp. said: “Whether Draghi will, or can, accept the challenge remains to be seen.”
The question then becomes if Draghi et al are pondering the same line of thought that Kuroda does. Deflation is a major issue in Europe already. Lower oil prices can be as much of a threat there as in Japan. My first idea would be that Europeans are more likely to spend the cheap oil savings into the economy than the Japanese are, but on the other hand there’s so much poverty all over the old continent that many people won’t have much at all to spend.
In the run-up to today’s ECB meetings there’s been lots of criticism of Draghi ‘going it alone’ and communicating very poorly with eurozone members’ central bankers. And he seems to be on course for his perhaps most serious confrontations:
Mario Draghi’s Efforts To Save EMU Have Hit The Berlin Wall
Mario Draghi has finally overplayed his hand. He tried to bounce the European Central Bank into €1 trillion of stimulus without the acquiescence of Europe’s creditor bloc or the political assent of Germany. The counter-attack is in full swing. The Frankfurter Allgemeine talks of a “palace coup”, the German boulevard press of a “Putsch”. [..] .. a blizzard of leaks points to an ugly showdown between Mr Draghi and Bundesbank chief Jens Weidmann. They are at daggers drawn. Mr Draghi is accused of withholding key documents from the ECB’s two German members, lest they use them in their guerrilla campaign to head off quantitative easing.
[..] We now learn from a Reuters report that Mr Draghi defied an explicit order from the governing council when he seemingly promised to boost the ECB’s balance sheet by €1 trillion. He also jumped the gun with a speech in Jackson Hole, giving the very strong impression that the ECB was alarmed by the collapse of the so-called five-year/five-year swap rate and would therefore respond with overpowering force. He had no clearance for this. [..]
The North is competitive. The South is 20pc overvalued, caught in a debt-deflation vice. Data from the IMF show that Germany’s net foreign credit position (NIIP) has risen from 34pc to 48pc of GDP since 2009, Holland’s from 17pc to 46pc. The net debtors are sinking into deeper trouble, France from -9pc to -17pc, Italy from -27pc to -30pc and Spain from -94pc to -98pc.
As I said, there’s neither love nor trust lost between the Japanese government/central bank and the people of Japan. And though Abe and Kuroda understand the link between deflation and consumer spending much better than most western ‘leaders’, what they don’t – want to – understand is that there is no magic wand to boost spending, other than raising wages. But wages have been falling for 20 years in Japan, and companies have an incentive to raise them in the present environment.
What will happen if oil and gas prices fall further? What is other commodity prices also start falling? What will Kuroda come up with then? Will he tell Abe to raise taxes? The 2nd part of the sales tax rise, of which part 1 hammered the economy after April 1, is already bitterly discussed. Other tax hikes seem even less plausible.
Japan is slowballing its way into a dead end street. Europe may be doing the same, just at an earlier stage, but picking up speed. While the US and UK are in a detour to that same dead end, blissfully unaware that no matter what you spend, you still end up in the same place, just poorer. Whoever can get his citizens to borrow most will seem strongest the longest, and then still break down.
But that’s tomorrow’s tale. Kuroda’s statement that QE9 (or whatever one may label it) was the direct, even pre-emptive, reaction to plummeting global oil prices, should give us lots of things to ponder. What will happen to European in/deflation numbers? They already look ugly, and where additional spending should come from is entirely unclear. What about the US? How far is it still removed from a deflationary threat? And what will it do when that threat intensifies, for instance when commodities’ prices sink?
Kuroda has thrown the first stone, and he’s named it. Central bank policies are no longer about the general state of an economy, or about jobs numbers, they’re about the threat of specific price levels. Now, I think that unlike the western press, Yellen and Draghi and other central bankers are acutely aware of what Kuroda stated yesterday. But perhaps I give them too much credit.
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The International Journal of Central Banking (IJCB) is an initiative of the central banking community.
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From this issue...
The Signaling Channel for Federal Reserve Bond Purchases
by Michael D. Bauer and Glenn D. Rudebusch
Federal Reserve Bank of San Francisco
Abstract
Previous research has emphasized the portfolio balance
effects of Federal Reserve bond purchases, in which a reduced
bond supply lowers term premia. In contrast, we find that such
purchases have important signaling effects that lower expected
future short-term interest rates. Our evidence comes from a
model-free analysis and from dynamic term structure models
that decompose declines in yields following Federal Reserve
announcements into changes in risk premia and expected short
rates. To overcome problems in measuring term premia, we
consider bias-corrected model estimation and restricted risk
price estimation. In comparison with other studies, our estimates
of signaling effects are larger in magnitude and statistical
significance.
JEL Codes: E43, E52.
Full article (PDF, 57 pages, 493 kb)
No shit.
Increasing demand, and thus the price of a bond, artificially or otherwise, always lowers the rate of return.
This isn't a signaling channel, it is simple math.
Idiots.
Wait a minute. Is this article trying to suggest that Central Bankers have brains? I thought I saw them on the Wizard of OZ, talking to the scare-crow for a hint.
Hookers, Blow, Rape, Pillage ...
For a good Banker that's called "a start"
Rape, murder, arson, rape... https://www.youtube.com/watch?v=2_urvjCXg6c
shortages = lower prices.
Remember, it's rape, pillage and THEN burn....
How stupid are central bankers?
Stephen Poloz, head fucktard at the Bank of Canada, suggested youth should work for free.
http://www.theglobeandmail.com/report-on-business/economy/poloz-having-something-unpaid-on-your-cv-is-very-worth-it/article21439305/
Hanlon's Razor states:
Do you think stupidity adequately explains the behaviors of central bankers? I certainly don't. Therefore they are evil fucks.
Look upon the classic definitions of imbecile and moron....
Garbage. Central banking/planning has always been about power and control of real resources.
same as it ever was...
Exactly
https://www.youtube.com/watch?v=QYEcj9wO1Ks&list=UUgpRSB3l55urNGNFYda53Fw
Not always, just 99.999% of the time....
“In order to completely overcome the chronic disease of deflation, you need to take all your medicine. Half-baked medical treatment will only worsen the symptoms ..”
ha ... that is precious
QE IS the half-baked medicine
it is the debt overhang, stoopid
Every time I look into the stock market chart I seem to see an endless pattern of middle fingers pointing out, as if the NY FED programs its algos to design random reminders to the general populace that it is there to give you the finger and f*ck all of us.
Pink slime
We need to create a housing bubble. It's not like middle class Americans will go neck deep in debt then drown when the interest rates rise. Fucking retards.
If someone turned Bernanke into pink slime, I'm not sure if that would make it more disgusting.
If you want more attention, tell a story. This piece is hard to read. I think that your premise is that: "Central banks are punishing people for not spending enough money."
This has been the case since the early 2000's when interest rates on accounts essentially dropped to zero. My reaction to that was to start buying gold.
The real story is about a misguided attempt to make people go against their self interest in order to maintain a system of debt based money. What Japan is doing is simply the latest vingette.
OK, tell the truth, how many of you think that the central banks of the world have been replaced by a HRT algorithm?
If not they could be...
It'd be a little wind-up monkey, clashing cymbals together, just like in Homer's.
Benefits of lower gas prices might also get used by people to get out from under debt (which is also deflationary).
Funky shit happens once an economy goes full ponzi. Central bankers mindset is to maintain the status quo at all costs while serving thier shareholders (which ain't Main Street, by the way).
Deleveraging FTW!
i knew deflation headed our way all along ... about my only "investment" since 2008 has been paying down debt (mainly business) ... retiring 5% debt is the best risk free option (not going to default no matter what)
"Kuroda has thrown the first stone,"
response from:
china?
vietnam?
korea?
taiwan?
malayasia?
etc
tick tock tick tock tick tock ...
Korea.
Fighting lower oil prices with lower interest rates. H.m.m.m.m.
Jean Claude Trichet talked a lot about stability back in the day.
This is the result of listening to Central bankers.
The results of Euro austerity ?
Irish death rates.
There were 30,018 deaths registered in 2013, the highest annual figure since 2001 when 30,212 deaths occurred. The 2013 death rate was 6.5 per 1,000 population, up 0.2 from 2012. Diseases of the heart and arteries remains the most common cause of death followed by malignant cancers.
Austerity is causing a rise in both the total and per capita death rates.
Death rates per 100,000
Y2010 : 613.9
Y2011 : 622.0…
Y2012 : 629.1
Y2013 : 653.5 ( a massive jump in deaths in just one year)
This is probably a result of a decline in 20 somethings (A third decline girls in their early 20s since 2009) and a decline of social and health services.
correct. and terrible. yet you impute the cause on "Euro Austerity". No mention of the massive banking real estate bubble that was a fully Irish event, and caused a doubling of Irish debt from 60% of 120% in order to bail out the two Irish banks, as the Irish Government decided, for which now the Irish parliament decided to cut on state expenses
nope, you call it Euro Austerity. because you actually ask for an Irish currency to be printed to the max, don't you?
@Ghordius.
No - if I had the choice I would give the asssets back to the people and therefore you would have no need for inflation or money printing
However if I could not change the debt money system I would print like hell.
Money is not wealth.
Its a means of exchange.
The Central banks are stopping the natural stock and flow dynamics of economies so as to save their friends.
Its quite clear to any old Dork.
I reject the underlying predicate -- that central bankers have a mind to begin with.
QE to infinity. The Federal Reserve's QE 4 next.
Lesson, print until there is a currency crisis.
Mario talked about the wonderful Irish GDP "growth" today.
What few seem to realize (even now !!!) is that GDP growth is net extractive of basic purchasing power.
Mario is happier to see more cars on Irish roads chasing scarce money - meanwhile this scarcity operation is causing a rise in mortality which I am sure he is also very happy with.
ALL CENTRAL BANKERS ARE EVIL.
My personal view is that there is no conspiracy in either Japan or Europe but just acts of desperation. Nuff said.
As far as the U.S. Fed is concerned I think there is a major fear of a dramatic ramp up of "militarism" for lack of a better term and hence a concern with whether monetary policy is too dovish. Obviously the Government folks dodged the financial equivalent of a nuclear bomb blast in 2008...but that doesn't mean the world just became all hunky dory.
I think we're up to our eyeballs in shit right now and when the President says "Dortmund" that's exactly what you get.
agree with your first sentence
imo, japan's halloween move the first shot in "every country for itself"
I don't have the faith in humanity you do. I don't believe it's just stupidity. They are basically evil.
Currency wars... They all try to depreciate their fiat into economic prosperity and wealth. Sometimes one at the time, sometimes in parallel... The lunacy is slowly but surely playing out.
When a central banker talks of growth he talks of reduced distribution of wealth and therefore further concentration.
The euro crisis was a crisis for the banks in that further concentration was hampered by fiscal handouts which they wish to destroy (despite the fact that they get interest off this policy)
The "growth" is toxic to ones health
I was hoping for a (post mortem) anatomical analysis of bankers' brains when I clicked on this article. -cont-
A example of a crap article in naked capitalism (bank lobbyist site) which automatic earth sometines shadow.
http://www.nakedcapitalism.com/2014/11/young-pressure-europes-lost-generation.html
"The NEET indicator measures the proportion of young people aged 18-24 years which are not in employment, education or training as a percentage of total population in the respective age group. We can see in Figure 2 that the situation among EU28 countries stabilized over the last four years.
The good news is that for the first time since 2007 we see a decline in the rate in the euro-area programme countries in 2013. This decline is, however, mostly driven by Ireland with an unchanged situation in Greece and Portugal. Also, in the Baltics the ratio is on a downward trend. More worrying, however, is the situation in Italy and Spain."
Does the author even bother to look at where irish twentysomethings are ?
They are increasingly not in Ireland.
They have been increasingly replaced by non EU nationals (previously by EU nationals)
Stats to follow...........
Estimated Population Ireland (000)
Age 20-24
Y2009 : 354.4
Y2014(est) : 244.3
- 110 thousand.
What a patronising fuck.
Deflation in a debt money system is outright theft.
I also think they love to be the center of attention....the ones the press is always surrounding...behind the mic.....important and on TV....they like that too...more than their jobs I think...they used to be in the background..not so famous...but now they are..and they love the attention
This all sounds pretty awesome! I just hope lots of people kill themselves.
Does anyone give a fuck about what psychopaths think?
Gov-Co will not be stopped. The Euro-class will raise taxes and tariffs, manipulate markets, suppress interest rates, impose fines, create new regulations – and do whatever else they must to insure that 90% of the population under 40 years of age become homeless and hungry within the next 5 years. Its all part of the “Let’s eat our kids” plan for the new world order (AKA “God’s work.”)
If the Central Bankers’ strategy doesn’t work, the back-up plan is to dispatch actual bankers (not just BofA) throughout Europpe to directly stimulate the economy by raping and killing prostitutes and stuffing them into suitcases – in an effort to at least generate additional luggage sales.
There is only one central bank. Thus its not a conspiracy but a single plan to push more paper money into a smaller group of corporation, individuals, and or families. After all they created the industry, they created the jobs, and they hold the power (government) and the printing press. What truly amazes me is that the Yen is still worth, what its worth.
The picture on the main page depicting a brain and equating it to a central banker is totally inappropriate.
Possibly a pic of cow dung, or maybe a pic of a perfect vacuum...
A rich white guy in a fancy house in DC and a poor minority in the streets. Same as today.
The recent drum beats and flames of war have distracted many people from focusing on the economy. The markets are extended beyond beyond, all this comes at a time when the IMF is calling for more QE. It seems this might be a good time to review the reasons this is economically unsound and a bad idea. Remember markets are setting new record highs at the same time economies continue to struggle.
The policies of the last six years have yet to produce the desired and expected results promised, all this money has benefited Wall Street but not Main Street. As a consolation many economist, bankers, and those who have benefited greatly tell us we would be in far worse shape if we had not taken this course. More on the subject of how central bankers are in uncharted waters and clueless on how to proceed in the article below.http://brucewilds.blogspot.com/2014/09/central-banks-and-imf-clueless-on-how.html
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