This page has been archived and commenting is disabled.
How Many More "Saves" Are Left In The Central Bank Bazookas?
Submitted by Charles Hugh-Smith via Peak Prosperity,
The master narrative of the global economy shifted six years ago from “China will push global growth for decades to come” to “the central banks can push global growth for decades to come.”
Time after time we’ve witnessed enfeebled global markets jolted out of terminal declines by central bank pronouncements and new money-printing policies. Never mind that the European Central Bank’s (ECB) Mario Draghi had no concrete proposals in hand when he announced the ECB would “do whatever it takes” to save the European Union from the financial consequences of its reckless abandonment of risk management; the mere announcement was enough to trigger a massive reversal in global markets.
The major central banks have tag-teamed one rally in global stock and bond markets after another: the U.S. Federal Reserve goosed markets in 2008, 2009, 2010, 2011, 2012 and 2013, only ending its various quantitative easing (QE) money-emitting programs in late 2014.
The ECB saved the day with Draghi’s “whatever it takes” PR gambit and more recently with its own QE money-printing program.
The Bank of Japan (BOJ) injected monetary amphetamines into global markets with Abenomics, a last-ditch effort by the BoJ and the government of Japan to crush the value of the Japanese yen and import inflation.
The People’s Bank of China (China’s central bank) has kept the credit spigot open wide for years, unleashing one of the greatest credit expansions in recent history.
China’s central bank balance sheet has doubled since 2009, but the star attraction in China’s debt bubble is bank credit. Compare China’s bank credit with that of the U.S.. Measured in dollars, the U.S. GDP is $17 trillion and China’s GDP is $10 trillion; measured in purchasing power parity (PPP), the two economies are roughly the same size.

The remarkable success of grandiose pronouncements, money-printing programs and serial expansions of credit raises a key question: how many more “saves” can the central bank bazookas fire that will have the desired effects of maintaining perceptions of central bank omnipotence and pushing global markets ever higher?
The Dow Jones Global Index (DJW) offers a snapshot of global markets. Since the last big central bank “save” in 2012, the index has lofted ever higher, staying comfortably above the 50-week moving average (MA).

But this era of central bank-induced euphoria appears to have ended in mid-2014; since then, price and key indicators have trended down. Recently, price has slipped beneath the 50-week MA and is struggling to overcome this line that was once support and is now resistance.
Though central banks have continued their ceaseless public-relations campaigns and kept various credit and money spigots wide open, this chart strongly suggests the central bank bazookas are losing their effectiveness. Iin other words, the returns on both PR and money/credit issuance are diminishing rapidly.
These diminishing returns may result at least partially from the end of the Federal Reserve’s massive monetary/credit expansion, which is reflected by the Fed’s balance sheet (courtesy of Davefairtex/mdbriefing.com):

After quintupling from $871 billion in 2008 to $4.5 trillion, the balance sheet has leveled off as the Fed ended its QE program.
Other central banks have kept their money-printing/credit spigots wide open, but it's looking like the Fed’s decision to end large-scale money-issuance of U.S. dollars into the global economy cannot be replaced with euros, yen and renminbi (a.k.a. yuan).
Saved by Cheaper Energy?
The astonishing collapse in oil prices has provided an unexpected (by most analysts) tailwind to the world’s manufacturing/consuming economies, even as it has dealt a crushing hammer-blow to oil-producing/exporting economies.
While there are obvious pluses and minuses to the cost of oil falling in half (when priced in U.S. dollars), the fact is that the major manufacturing/consuming nations have far larger economies than the oil producing/exporting nations (the one exception being the U.S., which is both a major producer and major importer of oil). So the advantages of lower oil prices for manufacturing, transportation and end consumers on a global basis outweighs the damage to the energy sector globally, which is roughly 5% to 10% of global GDP, depending on the current prices of energy:

Though many mainstream media sources are claiming oil will decline to $30 or even lower, and stay there for years, others are skeptical of this “cheap oil forever” projection based on the rising cost of extracting oil globally. Since the majority of the cheap-to-extract oil has already been pumped, what’s left costs more to extract when measured in energy (energy returned on energy invested—EROEI) or money.
Since oil is priced on the margin, relatively modest changes in supply and demand can move prices far more than many expect. The recent uptick visible in this chart suggests those expecting oil to drop to $30/barrel and stay there indefinitely might well be as wrong as those who thought oil would hover around a permanently high plateau around $90 - $100 last summer.
While the tailwind of lower energy costs has been welcomed in most of the world, the economics of oil do not lend much support to the expectation of $30/barrel oil lasting indefinitely. Lower prices will eventually cause producers to shut-in wells, rapidly reducing supply, while rising consumption in oil-exporting nations will continue to reduce the quantity of oil available for export.
In other words, it’s not just the quantity of oil that’s being produced globally that counts—it’s the quantity that’s available for export that really matters.
The tailwinds of lower energy prices might be as ephemeral as the tailwinds of hot air (PR pronouncements of the “whatever it takes” variety) issued by central banks.
The Destabilizing Rise of the U.S. Dollar
Just as the collapse in oil prices was not controllable by central bank jawboning or emissions of money/credit, it appears the strengthening of the U.S. dollar—a move that has destabilized emerging market economies and currencies—is not entirely in the control of central banks:

I have covered the dynamics of this destabilization in several prior articles over the past several months, including The Dollar May Remain Strong For Longer Than We Think and The Consequences Of A Strengthening US Dollar.
In essence, carry trades (i.e. borrowing in one currency and investing the proceeds in another currency) that were profitable when the dollar was weakening have reversed, turning into losing trades.
The more the dollar rises, the greater the losses in these carry trades, and the greater the incentive for those still in the trade to sell emerging market assets and currencies.
The flood of dollars unleashed by the Fed’s QE programs washed over the entire globe, encouraging people in emerging markets to take loans denominated in dollars. Now those loans are increasingly burdensome, as it takes ever-larger sums of local currency to service the dollar-denominated debts.
In response to these massive outflows of capital, emerging nations must raise interest rates to offer incentives for capital to stay put, which then causes the cost of new loans (and doing business in general) to quickly rise to painful levels.
As the currencies suffering outflows decline against the dollar, imports become more expensive and exports lose value when traded for dollars. It’s a triple-whammy for emerging nations: their borrowing costs are soaring, the capital leaving to pay off dollar-denominate debt leaves them starved for investment capital, and their imports rise in cost as their exports earn less.
As I have often noted, the failure to address the structural problems that caused the Global Financial Meltdown of 2008-2009 effectively transferred systemic risk to the enormous foreign-exchange (FX) market, which is connected to virtually everything in the global economy.
This is one key reason for the diminishing returns of central bank policies: all central banks have succeeded in doing is pushing the systemic risk into an arena they do not control.
In Part 2: What Will Happen Next For The US Dollar we explore just how far the destabilizing effects of currently in play in the currency markets -- currency wars, Triffin's Paradox, increased FX volatility -- are likely to threaten the global economy. It's very important to appreciate how the consequences of such global destabilization are not as controllable as relatively stable stagnation we have become used to over the past several decades.
In short, buckle up.
Click here to access Part 2 of this report (free executive summary; enrollment required for full access)
- 9429 reads
- Printer-friendly version
- Send to friend
- advertisements -


Rule number one. Their insanity can last much longer than your sanity.
<There will be a point where most people will beg them to turn the printer back on.>
Rule number two. Tell the people they will lose 75% of their money. Then the people will be grateful when they only lose 50%.
if you do not value money then you loose nothing ;)
"Well we can always move interest rates to zero or even negative and print a whole buncha MOAR money because we just ain't done 'nuff, yet."
-Paul Krugman, his cat Pussy and the Progressives who find solace in fee money to Build Bigger Gooberments
http://mathoverflow.net/questions/176627/derivatives-of-infinite-order
quite a long way to go yet.
Oh these fucktards have plenty of ideas- like leaning on Walmart to boost their wages by 15 cents per hour- it's Cash for Clunkers, Mark II.......
.... but if one values human life then you can lose everything ... and go look for those who created the catastrophe.
That depends on what you mean by "life". Once can argue life is the eternal principle in the mortal human.
yes, but to truely live you must be willing to die. a life spent solely to survive is not a life worth living.
as alan watts explains
https://www.youtube.com/watch?v=f_HkQ4-x4P4
check.
The fed owns magic fairy dust -- Long magic Fairy dust.
Thats talc dripping from Mr. Yellens twat.
I Agree with your Wisdom. :)
Rule #3– Double Tap.
You think it’s dead (technically it was before you shot it), one more makes 100% sure.
Oops... Wrong set of rules, yet seems so apropos.
Sounds pretty sane to me.
Maybe the wrong set of rules but a good one none the less. Actually I believe Double Tap was rule #2, rule #3 was Beware of Bathrooms. Rule #20 might also be helpful: "It’s a marathon, not a sprint, unless it’s a sprint, then sprint"
my co-worker's ex-wife makes $88 every hour on the internet . She has been laid off for seven months but last month her pay check was $12619 just working on the internet for a few hours. Learn More Here. www.globe-report.com
Enough to wipe out the capital of contrairians before they are proved right.
Perhaps that is the plan, wipe out everyone's capital.
I feel like I am being ground to dust no matter what move I make, or do not make.
It is as though someone looked at the game board, and gamed out every single possible move one could make long ago and is waiting for each of us to fall onto the respective squares.
Do what the CBs and East are doing.....buy physical gold and TAKE POSSESSION....when the ponzi hits orbit there will be only ONE currency to go to until the dust clears........gold
I'm with you on feeling like that. They can even print money to pay people to sit and game every possible scenario to use against us. Meanwhile we're spending most waking hours trying to tread water in the torrent they've created for us. It's like being in a bad horror or sci-fi flick where no matter how fast and far you run the monster already knew where you were going and is hiding in the garbage can around the next corner.
My only personal solution is to avoid playing their game wherever possible and throw sand into the gears whenever possible. Other than that I'm just cruising through each day, paying attention to what's going on where I can and enjoying everything I can from the day. I've given these ambitious, greedy bastards enough of my life energy wondering what they have in store for us next. I'm done with that shit!
by manipulating the markets they just delay whats unavoidable
we need some serious reforms to the system like Greece try to start with and everybody is barking on them
Dollar breakout and oil rout seem to be correlated...
Interesting that oil finally moved to the upside very recently -at about the same time that US Trsrys rates revesed and rose precipitously off bottoming...
Tyler, that HSBC piece last week was priceless.
only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014. only ending its various quantitative easing (QE) money-emitting programs in late 2014.
So...what you're saying is......?.. what again?..
TL; DR...can i get the minutes please?..
Usually the comments give me the jist..but ther just aint enough for me to get the full picture. Is this about china?..
Fed minutes? I can link you.
New York Fed to Post Agenda and Minutes from External Committee Meetings - Federal Reserve Bank of New York
Oh come on. You could have written the same thing in 2010, 2011, 2012, 2013 or 2014. Giving away free money is a powerful drug. Love ZH but you kill credibility when you publish this stuff. You will eventually be right, but trying to time that is a fool's errand. If they announced QE4 tomorrow everyone would cheer and the market would go up a 1000 points. I've said it many times - this carnival will stop when food gets out of reach for government subsidies to pay for it and people riot. The big one will happen in the middle of the night many years from now
Whoever junked the comment and didn't have the balls to say why - I didn't say I liked it. But look around, watch the market every day and tell me how it's wrong. "They" want stock markets to go up right now so they are going up. If I would have told you 3 years ago that the S&P would be at 2100 right now you would have laughed your ass off. Now it's just as normal as can be. Yes, we are in the Matrix, but wishing it not so doesn't change a damn thing
let's get it over with.
It all hangs on the vast populations confidence in fiat. As long as that holds, the central banks can continue to print and digitally manipulate all markets. This is especially dangerous in the commodities, at least for us, 'we the people'. Because it is there that they can not only steal our wealth but literally our daily bread. Unfortunately I don't see confidence in fiat or the markets in general fading. Look at how everyone, even here on ZH hangs on every lying word that comes out of the Central bankers mouth.
We need to throw out hopium, especially we that sort of understand the whole scam that they are perpetrating and come to terms with how pervasive and ingrained this thing has become. By telling ourselves that they will lose control any day now we only delude ourselves, and we are here on this site to achieve the very oposite of that.
Completely agree. We are still at a place where people think money printing is helping them or are completely oblivious (I would guess 75-80% of the US population couldn't even tell you what QE is - total blank stare). While we are still at the point where you could say food stamps will be cut 20% if we cut back and people would go nuts you are nowhere near the end.
Disagree the PARTY is almost up. The cracks are forming like Vesuvius.
You can fool some of the people all of the time and all of the people some of the time but not all of the people all of the time ( Abe Lincoln ).
Long Time....Let me explain this in simple terms...Our Politicians are Trial Lawyers/Lawyers...50-52% of The House and Senate are Lawyers....Make sense now? Lawyers protect Lawyers regardless of Party...The Lawyers protect the Bankers the Bankers fund the Lawyers(Political contributions)..Now you get it.....Now you know why the law profession is unregulated...
Hey, I'm a lawyer! And completely agree
So, explain to me how the chicoms have equal PPP, when their currency is getting wiped out all while the dollar is surging. Little bit of Contradiction. Additionally, you leave out the likelihood of new technologies getting oil and nat gas out of the ground, such as fracking. And please explain to me how its a bad thing when we as an economy the is largely imported. Are effected negatively by this strengthening dollar? I call bullshit. A strong currency is a good thing. It draws investments in from all over the world. It sounds to me like a fucking tV sale is about to happen at walmart.
Isn't the real question:
"How many more bilge pumps do we need with a gash ripped open as long as a football field in the Hull of State?