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The $100 Trillion Reason Why Central Banks Are Terrified of Debt Deflation
The world is turning Japanese.
For over 20 years, Japan has been ground zero for the great Keynesian nightmare of Central Planning. Japan’s financial bubbles burst in 1989-1990. Since that time, Japan has seen little to no growth for thirty straight years.
The Bank of Japan has dealt with this by running an effective zero percent interest rate policy and implementing over NINE different QE programs amounting to an amount of money equal to over 50% of Japanese GDP.
Throughout this period, neither Japan’s GDP growth numbers nor its employment growth numbers have improved significantly.
In the simplest of renderings, Japan has proven point blank that you cannot fight an epic debt bubble by making debt cheaper. The facts are right out in the open for all to see.
However, this has not stopped Central Banks form around the world from implementing the exact same failed policies to fight their own bouts of deflation.
Globally, Central banks have cut interest rates over 500 times and printed over $11 trillion to combat the brief bout of deflation that ran from 2008-early 2009.
The results have mirrored those of Japan’s post 1990: anemic growth and chronically high unemployment. By all measures, the “recovery” post 2008 for much of the world has been the weakest in the post-WWII era.
Rather than trying something new, Governments and Central Banks have resorted to simply printing more money. And they’ve dealt with the slow growth by simply fudging their economic data to the point of it being outright laughable.
All of this makes no sense at all until you consider that ALL of their actions have been focused on one thing: making sure the global bond bubble DOESN’T IMPLODE.
When stocks crash, investors go broke.
When bonds CRASH, entire countries go bust.
This is why Central Banks have done everything they can to stop any and all defaults from occurring in the sovereign bonds space. Indeed, when you consider the bond bubble everything Central Banks have done begins to make sense.
1) Central banks cut interest rates to make these gargantuan debts more serviceable.
2) Central banks want/target inflation because it makes the debts more serviceable and puts off the inevitable debt restructuring.
3) Central banks are terrified of debt deflation (Fed Chair Janet Yellen herself admitted that oil’s recent deflation was an economic positive) because it would burst the bond bubble and bankrupt sovereign nations.
This is also why globally the bond market has TRIPLED in the last 15 years: as bonds come due, bankrupt Governments have been forced to issue MORE debt to pay back bondholders.
This, in turn, has driven the rise in leverage in the financial system. As the risk-free rate fell, so did all other rates of return. Thus investors turned to leverage or using borrowed money to try to gain greater rates of return on their capital.
This bubble, literally dwarfs all other bubbles. To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).
When this bubble bursts, 2008 will look like a picnic.
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With interest rates at 0% the amount of leverage that can be applied is almost limitless and can go on for decades.
Just default. What can't be paid, won't.
Will the PTB (powers that be?) come to my house to put me in the street when I don't pay my property tax? Sure, if it's just me. Will they come if nobody is paying property tax? Kinda like in Detroit?
The orriginal purpose of the central bank was to regulate the money supply to stabalise the economy from extremes. But such unrestrained power to print money, or create debt without restraint in the hands of banks will always be abused. The FED has never sought to reduce its debt.
Bullshit.
The original purpose of the Central Bank was to be a lender of last resort to other bank's.
Keep playing with fire sooner or later you are going to get burned. What goes up must come down.
From the article..."However, this has not stopped Central Banks form around the world from implementing the exact same failed policies to fight their own bouts of deflation."
It would be interesting to know what has happened with Japan's distribution of wealth. If the gap has widened between the rich and poor and continued to do so over the last 20-30 years of QE then it would be fair to say Central Banks know exactly what they are doing.
The point that must be hammered into our so called world leaders is that they have to stop QE/ zero interest rates to bring this gap back down to a fair level. Central Banks should be the target of political ire not adulation.
We will only be able to control Central Bankers if those on the bottom rungs are informed and act. As more of us find ourselves drifting out of the middle class metric this may be a possibility. A third party candidate needs to campaign on bringing the bankers back into the fold of serving the entire society.
If we have 20-30 years of data courtesy of Japan's QE then why aren't we demanding politicians use it?
I have no faith in the left/ right paradigm but surely there has to be someone to run in 2016 solely against the Central Bankers. Ron Paul- someone- has got to step up.
I agree with much of that, except the situation has probably gone way beyond any ability to deal with the crises of the governments'/central bankers' own making by any form of rational debate because you cannot negotiate with criminals.
As you say, they know exactly what they're doing and it has to be stopped. There aren't many options left and time is running out.
There are NO options left at this point, except for one:
1. Soap Box
2. Mail Box
3. Ballot Box
4. Jury Box
5. Ammo Box
How this last option will be brought to bear I don't know, but that's the way I see it. Sucks that we've reached this point, but reach it we have.
P.S. Options 1-4 are supposed to be striked out.
Good point. Until Zio control of the media is removed, there will be no honest debate - no third party. Look at how Ron Paul was marginalized. Had he really made headway, the next step for him would have been "an accident" or sudden "heart attack" .
1) Central banks cut interest rates to make these gargantuan debts more serviceable.
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Yeah, but that's not all super-low rates cause. They cause almost everyone (especially governments) to look at those low rates and say to themselves, "I'd be crazy not to borrow at those rates". And so they do.
And so the gargantuan debts that were the problem before, become hyper-gargantuan debts.
And... that's a solution?
No.
And they knew so.
And they know so.
They are destroying the world economy ON PURPOSE.
That people are willing to believe they are THAT stupid, then turn around and claim "we need them to run everything", is so absurd as to be beyond offensive and beyond insane.
“When this bubble bursts, 2008 will look like a picnic.”
No argument there.
Shortly thereafter, or before, Treasury will ask Congress for a new debt limit.
How should Congress respond: raise taxes… cut federal agencies… cut Social Security retirement checks… investigate and recover the trillions that went missing from several federal agencies and state governments (cities, counties and special districts)?
Please vote your preference with this Poll.
and right before 911, Rumsfeld talked of missing Billions at the Pentagon
Yes indeed. I believe the amount was somewhere north of 2,000 billion.
"When this bubble bursts, 2008 will look like a picnic."
Yep. This bubble is the granddaddy of all bubbles.
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
When we have the reset I have dibs on the car next time.
I never liked the iron.
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Hackne
This is one hell of a ploy to break the record for down-arrows. I think you just knocked the keystone out of the arch.
The CB proliferate bond debt, collapse is the ultimate goal
prevention of collapse is the enemy of the looters, everything they do is to make it worse, to them fiscal conservatives are terrorists and peoeple that oppose alien tax parasites are outright NAZIs
I do not understand why they would be terrified? They make and can alter the rules to suit their needs. We need a new political party that would follow the constitution. No budget defecits unless in time of declared war.
Exactly. The economy is a monopoly game where the player who is the bank also owns everything, and everyone else keeps playing. The bank pays everyone their $200 when they pass go but that is quickly used up when they land on one of the bank's properties. The bank has already used up all the monopoly money (which it also owns) so writes new money on pieces of ordinary paper paper (look it up its in the rules http://www.hasbro.com/common/instruct/00009.pdf )
How long do we keep playing the game?
The country is very ripe for a 3rd Party candidate, actually I should say candidateS, not only for Pres, but all positions, House, Senate both National & State
I believe if Ron Paul were to run, not as a GOP, but as a 3rd Party, he would win. He had attracted the yound also, and Veterans, and appeals to people from both entrentched parties
The People have lost Trust in the status-quo/both parties
Good sentiment, unfortunately not going to happen. It's not what
you know it's all about WHO you know. Chaos is the order of the day.
TPTB hold all the cards that count. Who wants to bet that French
President Hollande doesn't mention the lifting of sanctions against
Russia, just sayin .
I attended a Tea party meeting last evening. As an Anarchist leasning Libertarian I wanted to hear what they said. The congressman they just campaigned to elect who said he would vote against Boehner-voted for Boehner.
Then we had a presentation on Common Core. They want a grass roots effort-local control and all that- to turn it back.
Next up was someone who had been elected on a local school board. She was against COmmon Core.
She said the idea that there is local control is propaganda-a myth. What she said was terrifying.
What I do not understand is why there are still Republicans who still believe that the system can be changed by working within the system?
The Corporate Fascist system of education examined last night made it perfectly clear. There can be no undoing of this system.
We need a reset.
Here's hoping Rand Paul can get his father's "Audit the Fed" legislation passed tjhis year...
http://www.globaldeflationnews.com/rand-paul-takes-up-his-fathers-cause-...
I'm afraid that Rand is not Ron. Ron is on an education mission and has made great strides in that area. I'm not sure of Rand's motives and I'm not negative toward him at all, I hope he's even half the man his father is.
The alternatives are not good.
I wish I shared your glass-half-full sentiment for Rand. IMHO, he is a tiny fraction of the man his father is. In other words, I believe Rand has made the mental calculations, and has decided that he will play the status quo game, tossing a bone with a few shreds of meat still on it to the tired and oppressed middle class.
Ron is the real deal. Too bad it took us 30+ years of him getting drowned-out and laughed at during his tenure in congress for us to start waking up. Makes the education job he did all that more admirable.
seems to me debt is already worthless, 0APR, ZIRP, they cant give debt away. other than gas stations theres a penalty for paying cash. whats interesting is that when i recently transferred a large sum from one bank to another, they put a ONE WEEK hold on the funds. the enemy is cash, with cash you dont need their debt. the debt peddlers are desperate, this is why they want to bail you in, and if and when they do bail you in, they will hand you a certificate of debt in exchange for your collateral. (a bond) bonds are the ultimate in paper ponzi schemes and kiting, but in order to keep the scheme going they have to get you to buy them, bill gross says buy treasuries, better yet buy money, its more secure (unless of course you try to move more than 5K at a time) save yourself buy debt
Did you have to fill out a source of funds document?
I did: and I had to prove I have controlled the funds for more than six months.
The sum was over $100,000.00.
I moved it from a bank to a credit union.
no, that was obvious, its a trust account. although some bean counter for the HSA is probably looking over the list of deposits and withdrawals (or more likely a computer algorithm) as i understand it anything over $5000 is flagged (even credit card payments) so if you had written 21 checks for $4999, for deposit only, you would not have been flagged, in theory.
Thanks for responding. BYW, the 4999.00 is now a flag unless the source is recorded. Someone has had their funds seized and filed a lawsuit to get them back and the suit was denied. I don't remember who, what, where, when, but I'm sure it's on the WWW somewhere.
Thats right...a store owner bringing in the weeks sales in cash...and the cops confiscated it saying "She was trying to duck under the 5000 line....
Not mentioned is the fact that funding of the political processes and the resulting corruption of the monetary system which is the SOURCE of the destruction of the rule of law, which includes control over the fourth branch too, in the sense that the mass media, and school systems, are the fourth branch of government, which significantly contribute to destroying the ability of We the People to operate effectively as the final check and balance to the abusive power of governments.
THE SOURCE OF THE PROBLEM IS THE SOURCE OF THE MONEY. The privatization of the public "money" became a vicious spiral, which enabled the profits from frauds to be reinvested in more frauds.
And so, we have a fraudulent system of systems.
It is septic.
"When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it." - Frédéric Bastiat
~"If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits."~
I'll save you the trouble.
1.) Buy PMs.
2.) Hide said PMs.
3.) Buy arable land.
4.) Work said arable land.
5.) Own a cow.
6.) Milk said cow.
7.) Develop your neighborhood network, (know thy neighbor).
8.) Own guns and lots of ammo, (be the peacemaker).
9.) Teach your children yourself.
10.) Talk to the government as little as possible.
11.) Have your neighborhood network retain an evil attorney, ("good" ones are useless against corrupt governments).
12.) Be ready for when the world goes on sale, ('cuz baby, it's coming).
Sounds like the Resume of an Introvert with no prospects of employment
Sounds to me like he is his own employer.
Because being someone else's employee is where it's at, eh Geno?
Ouch. That's gonna leave a mark.
Love the one sentence paragraphs!
If you love one sentence paragraphs, you will really love...
WHEN it collapses can be a long time or tomorrow. In meantime enjoy life, enjoy family and anything else that tickles your fancy until it is time for WHEN your time comes. Phoenix approach is worry until WHEN occurs or take his advice and worry even more. Lets hear from those who have taken his advice and are worry free and have prospered.
The bond bubble will not burst idiot. It will be fully owned by a relative few and then will simply become irrelevant like all the other fiat and baseless paper claims on real assets before.
history is very clear on this.
as long as bonds remain liquid, they are the same as cash. if you buy a 30yr now you are really buying cash. thats the bullish argument. bonds are cash on the sidelines, yet with the financially engineering we have their collateral is already invested. even if rates went dramatically higher, and bond values fell, those who hold those bonds will still be able to access their principle and reinvest it. this is the salient issue in the derivatives market, if that collapses then an orphaned bond is just a lot of money buried in the backyard in a time capsule to be opened in 30 years (hence they will defend the taxpayer bailout of derivatives always) but with the liquidness of this paper, the condition of the bond market is less of a factor.
Sure, but you did not address the issue of who holds what percentage of the "liquid market".
The question is will it fucking matter when the majority of that paper is helpd by one central bank.
you also speak like sorvereign debt can't default. Good luck with that asshat.
and if the who is a charter bank of the Federal Reserve, they simply add that money to their reserves and count it as capital. of course sovereign debt can collapse if you're argentina. its what doug noland calls moneyness, how much this paper behaves like money. and with the global derivatives market in place it does a pretty good job, but collapse that market and then you have problems, this is why Congress signed Cromnibus and potus cosigned it. and i think ass hat is two words and you misspelled sovereign.
When governments collapse, the people will turn on the perps like a starving Wolfpack. That's their greatest fear, not esoteric debates on theory which is nothing more than Ouija Board gobbledygook.
If their grand socialist experiment unravels sufficiently, they will be searching for their holes to hide in just as Saddam did. What a future they have, and the government hired goons will be forced to look after #1 and every man for himself. They will shuck their unis faster than a stripper and do the chamellion blend in trick.
Private thieves such as central banks will be tossed into the history dumpster.
You give the people too much credit. They do not know who the perps are or why they did it.
They are going to turn on everyone.
Granted people turn, but if they don't know who the perp is then it is futile. 90% of people don't know diddly about the Fed, the prez has a 46% approval. The fall will be cloaked in a false war and their boogieman (Hussein, Gaddafi) will be the fall guy.
There is always another bankster waiting in the wings to roll out his treacherous plan.
"When bonds CRASH, entire countries go bust"
RE SET!!!!
Bring in a new management team!