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The SNB's Wake-Up Call: Keynesian Central Banking Is Destroying Money And Markets
Submitted by Jeffrey Snider of Alhambra Investment Partners via Contra Corner blog,
It seems everyone was short the franc (CHF) as a matter of taking monetarism at face value. In other words, it amounted to believing the central party line about the economy and normalcy despite the fact that markets have been increasingly pessimistic about it all and actively and aggressively betting against it. Goldman Sachs is just one of many:
In our portfolios with currencies, we have been short the CHF on the grounds that it was an expensive currency which we expected would experience capital outflows as European growth normalized. We were surprised by the sudden removal of the peg.
The only way to be surprised about the removal of the peg, or even to be short the franc in the first place, was spelled out in the first sentence, “as European growth normalized.” Being short the franc was essentially the same thing as being long the European economy. Given all that has transpired in the past seven or even eight months, there was no shortage of contrary indications that such an assumption was more than precarious and ultimately asymmetric against.
Of course, the counter opinion is the same old “it wasn’t big enough last time but it will be this time.” In other words, the ABS, covered bond buying and negative nominal rates were just the warmup to the real QE event. Unfortunately, that is revisionist as the ECB has been taking intense monetary measures pretty steadily since the day it first announced the original OMT in the middle 2010. The only accomplishment in that time has been an internal recalculation about “the economy” itself.
Nothing about Switzerland’s financial system in the latter half of 2014 was anything like a positive interpretation on the state of the European economy. In fact, the Swiss debauchery was as much screaming about the insanity of the ECB and just how ineffective and impotent the entire practical operation was right down to the smallest detail. The most obvious interpretation of the chart below is short the recovery in not just Europe, and not just from the past two days:
The utter lunacy of the ECB is reaching its inevitable end because lunacy itself cannot create economic, or even financial, normalcy. The Keynesian heart of all of this is that they fully believe redistribution can make for potent economic tonic, but redistribution is at its root a very negative factor. So monetary theory attends to that by placing what it believes are limitations upon its usage and scale; “yes, inflation is bad, but we will only be using the slightest amount.”
And you can easily see exactly what that “slightest amount” gains, as instead the failure of “just a little” redistribution is but added to; and then a little more; and a little more. It doesn’t take long before the constant hold of interventionary redistribution mangles even the most basic of functions in finance – the time value of money (credit). Central bankers will talk about “term premiums” as if that mattered to them in the slightest, rather speaking about such essential market function as if a field researcher gazing upon the rudimentary research subject. The object of redistribution is to kill money as if that will make people spend for the sake of spending. Instead they only kill basic interpretations of “money” and lead that suppression toward unbridled euphoria elsewhere.
Just in these most basic terms, how low do interest rates have to be suppressed in order for this all to work? Well, if you believe the IS-LM framework then it all depends on the natural rate of interest, which has been “calculated”, apparently, even more negative than it supposedly has been since 2007. To an economist, let alone a central banker, the world is but a spreadsheet with equations that need to be balanced, and if there is no economic momentum than the balancing factor must be that natural interest rate. The more the economy fails to respond to “just a little” redistribution, the more negative the “natural” rate is equalized in the regression; in programming, this is referred to as an “infinite loop.”
Alan Greenspan once queried the FOMC, in mid-2003, about what might happen once the zero lower bound was reached. That thought applied only to the shortest end of the credit space, the overnight rate at which the Fed thought it could control all the rest. In other words, because Greenspan, and the rest of them worldwide, believed that they could exert tremendous influence just from an overnight rate (that turned out to be more anachronistic than anesthetic) the economy’s variability might easily be corralled. That was the primary mistake of all of this, really, in that monetary authorities far overestimated (and continue to do so) their influence and the influence of the tools they used (which were relevant in the 1970’s far, far more than the 2000’s).
It seems these same central bankers, in a mad dash toward proving they have at least some control, are going to take the whole damn thing, bills to notes to bonds, down to the zero lower bound. It started in Japan and has spread now to Europe, where Germany and Switzerland (and Denmark) are seeing negative rates out to 6 or even 9 years.
The zero lower bound was supposed to be a narrow and dangerous obstacle, not a universal standard.
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Correction: The SNB is not destroying money. It is in the process of destroying currencies that parade as money.
Everyone is doing the TBTJ banks bidding. The root cause is the fractional reserve banking financial asset ponzi where phantom AND SENIOR financial claims on real flows of value from labor and actual savings ( production less consumption ) concentrates "wealth" in the financial sector over time from boom/bust cycles. TBTJ banks frontrun the Central Banks using inside information. This is the problem.
This is abolutely correct which is why the relative decline in manufacturing in the US is matched by a commensurate increase in the financial sector in GDP terms.
What the central banks have missed IMHO is that the effect of low interest rates is nullified by QE which pushes up asset values, so a businessman who wants to buy a factory might be able to borrow at a much cheaper rate but at the same time has to borrow a lot more to buy that property due to asset inflation.
This was the problem for a great deal of the initial phase of QE and ZIRP. This is why the world economy (amongst other reasons) never achieved real traction.
Any neo-Keynesian economist would tell you that is the point of their policy - to push asset prices up while increasing lending.
And the hidden trap is that while on a cash flow basis it would appear that twice the debt at half the interest rate is the same thing as half the debt at doube the interest rate, the catch is that the repayment period under the low interest regime is considerably higher.
No. The real catch is that the TBTJ banks control credit, which in the modern economy is the effective money supply. As soon as everyone is levered up, they tighten to have their SENIOR FRB claims wipeout equity... TBTJ hasn't actually out QE funds into the economy. They are all sitting collecting another Fed subsidy (IOER). At least in ECB, they established negative IOER to force TBTJ to lend to make a profit. If people really understood the way TBTJ has been undermining CB and positioning to effectively steal from the public again, every officer of every TBTJ bank would be lynched by a mob in a public square immediately. People have to stop focusing on CB. They are NOT the root cause. The FRB financial asset ponzi of TBTJ is.
Do not underestimate the effect of higher asset values which require higher borrowings and therefore increase the loan portfolios of banks and hence their profits and stock price. The effect of what I describe above is that people end up carrying their lans for longer periods and eventually those debts become inter-generational.
See they say one thing and all the while they have been doing anyway, then the actually take more Civil Rights or Tax money or create loopholes for Elites.
Take the recent announcement of a new cell to monitor militant youth or possible ativists... WTF they were already doing that, they probably are putting more money into Total Domestic Spying or Processing the Data Collected on Everyone.
CB say they are MMT Style Economists or Keynesians, but we know Congress doesn't give a damn about anything but success and money. Do we believe CBs?
Correct me on below repost... I'm probably missing something.
- They say they want Inflation, targeted inflation rate, but some still think they care about Job Levels too, if We were Junkers from old Germany of the 18th Century, we would love to say their is no inflation - but housing, education, health care, and government are getting better & more valuable (works for Elites & Rich, but not so good for peasants)
Repost:
CB is Racketeering & Treason (Just like US Congress, Our So Called Parents, who ship Jobs overseas while taking Bribe Money from the US Chamber of Commerce and Our Kiretsu Corporations to do it). FX Exchange is probably a Racket too.
These guys just "Gaslight" everyone into thinking Banking & Finance & Legislation & Income Taxes have to be hard. Just like writing out long Legislation to put on top of reams of other Legislation. Tax Code of 70,000 Pages. WTF?
- You can't come up with one reason why we need Central Banks
- We can set up Regional Centers for Cash Notes in the Event of a Bank Run
- Leader of Last Resort, Discount Window, we know they should have called it the Government Printing Office from 2008-2011, we don't need that if we don't export Fraudulent Derivatives and have to bailout foreign governments to prevent war
- Look at Domestic Private Investment Levels, Look at Capital Equipment & Facilities Expansion... these are small numbers compared to the $1.7 Quadrillion in Global Derivatives, WTF?? USA is the Richest county, but we don't have anywhere near $1 Quadrillion in Assets & Stocks & Bonds
- CBs are very cool with Exporting Jobs & Industry & Military Secrets & National Technology (They are Vultures)
- CB are cool with new minimum wages & Obama Care Taxes... and they don't have a problem with Augustine's Law, the exponential Increases in the Cost of US Military & US Weapons... So they don't count Food, Shelter, Health Care, Social Security, Education, or Military Costs in Inflation... and Fiscal Policy is not their Bailiwick... Even though Federal Spending is Exponentially Growing & represents Half of the Economy Now
NO, I'm sure we can't find a single reason to have a CENTRAL BANK... Not when they are all on the Take, and True Pirates, True Racketeers.
Here is probably the most most concise history and explanation of the deplorable collusion between the bankers and their paid national leaders, and the tragic, periodic consequences. 20 minutes reading, which will enable you to see through the fog of obfuscation that arises every day and prevents the 99% from having a clue as to the simple corruption being reenacted, decade after decade:
http://whatreallyhappened.com/WRHARTICLES/allwarsarebankerwars.php#axzz3P5zMajSY
The Germans, Dutch, Austrians and Finns must do what the Swiss have realized is necessary for the long-term health of their citizens ... bail on the Keynesian lunacy of unlimited money-printing and "ponies for all", and leave the euro. Yes, it will require the governments capitalizing brand new banks to absorb both the bank liabilities you wish to protect (e.g. bank deposits of the citizens and businesses) and the "good assets" held by the banks (those that have any prayer of being repaid in real terms). But if done right, the new banks can be privatized in short order. Let the shareholders and debtholders of the failed banks, which have brought the middle classes to their knees, rapidly descend into the abyss of insolvency.
What is a bank?
It is a place where your hard earned currency goes to die a slow death but which sometimes dies quickly when someone else decides on a haircut.
I asked this same question a few days ago and was illuminated by the response: you go there to get paper that makes other people give you sex, drugs or lap-dances. This site is really helpful.
Can we just call Switzerland a keystone by now?
I've always been suspicious of any nation that produces food with holes in it.
Again..."Death of Money."
ALL OF THIS IS POOPIE PAPER.
They'll be lucky to even see a greenback in the next week.
All of them.
"Herbert Hoover time."
Where have the recent Nigel Farage videos been ? I guess I could just Google for them. But for an American, seems like radio silence to me.
"The zero lower bound was supposed to be a narrow and dangerous obstacle, not a universal standard."...
Like the worst anchor you could ever own!
Great summary of our present condition!!!
Wall Street crashed the Western financial system in 2008.
The "wealth creators" recognised there were no easy profits to be had and retired to their luxury yachts.
Central Bankers are trying to put Humpty together again.
They are not doing well.
They are two sides of the same coin.
Why is it that redistribution is always the preferred option of those who have shed loads of money and those who have no money at all.
The poor schmucks in the middle who have to work for their's and their families daily bread are not in favour because they are the ones who end up paying for it.
Redistribution as with all socialist policies stinks.
Let's see here. Trillions upon trillions of private sector debt dumped on public balance sheets, a political system wholly captured by vast corporate and financial entities, trade and tariff deals that strip state and local (public) governments of legislative power and bail outs/ins baked in. The only thing missing is nationalism, which is really no longer necessary. Are you sure you have your -isms correct?
Redistribution certainly is a potent tonic... <sarc>
Fiat represents the malleable energy of man. Its creation and control comes from a dark spiratual source, and that source most certainly is not concerned about the condition of man.
So bondhlders does not earn interest anymore; what's wrong with that? May be they should start looking for more risky investments?
Used to be nobody wanted gold because of no interest...but now I'd rather own gold and short the 2 or 3 yr bond until I die.....no brainer
If you short a bond and its yield goes negative, the bond holder pays you. And then you use that cash to buy bond puts.
The SNB move indicates a belief that Switzerland businesses will not be selling much in the euro area in the immediate future. Probably future orders dropped to near zero. World trade is drying up.
The time for QE ala EU is past. The world economy is already headed down the toilet, and has accumulated quite a bit of momentum. This has been hidden from the masses (but not ZH), so the bottom line has to be the following.
The ECB knows the global depression has already started, and has already acquired substantial momentum. Therefore, the ECB knows that a trillion-euro QE won't do much, and won't have very long lasting effects. And THEREFORE, the ECB knows:
#1: The ECB only does one QE, and look like complete morons when the EU continues to tank like the rest of the planet.
#2: The ECB wants to go Japan, which means go full retard insane, and knows waiting this long to QE assures both complete collapse and endless QE, followed eventually by hyper-inflation.
How the ECB gets Germany to buy into option #2 is beyond me. But it seems all the "leaders" in western countries have gone full (and fully intentional) retard in recent years. So who knows, maybe Germany trying to learn lessons from the past has always been "all show".
It was the credit system that destroyed itself through unregulated financial speculation.
The Bankers and .gov will not face the facts that we all are packing too much debt, thanks to the FR Lending policies ie greed.
Once you have killed the horse no matter how much you kick it, it will not get up.