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Taking The Monetary Policy Ride Into The Theater Of The Absurd
Submitted by Jeffrey Snider via Alhambra Investment Partners,
There are any number of colloquialisms for monetary repression, “reach for yield” and serial asset bubbles being a few. In the vernacular of monetary policy itself, such color is disdained in favor of technocratic banality – “portfolio effects.” The idea is simple, which is to say that by repressing the returns on “safe” investments financial agents will be forced, not of their own volition, into “riskier” assets and asset classes. The prices of those risky assets rise, and that is supposed to contribute to economy-wide good feelings which loosen purse strings, in the equally prosaic terminology of the “wealth effect.”
There is, yet again, an unearned sense of precision about the task and the linkages to actual economic function that belies the chaos and mess of a real economic foundation. Removing organic profitability as a mechanism for resource distribution also obliterates constraints on methodical behavior. We may not think of such discipline as useful during periods of economic malaise, where “risk” seems to be lacking, but true discipline leads to the very processes which create sustainable economic advance. The allure of monetary-driven “risk” is an illusion of artificial bursts of at best short-term activity.
It seems we have come to a sort of crossroads state whereby past attempts at fostering economic advance through “reach for yield”, portfolio effects, directly interfere with current commanding efforts. Without admitting guilt, central banks and political regulators have combined to “make banks safer” largely through more complex banking regulation conspicuously free of free thought and common sense; especially Basel III. One component, which was “learned” of the Panic of 2008, was that banks “need” a liquidity buffer to withstand “market” funding withdrawal. There are, of course, formulas that determine these.
Banks especially in Europe were found wanting of such a buffer and have been “encouraged” to build their own around sovereign debt – which is believed, still, to be the most highly negotiable of all asset classes despite relatively close experience. That last problem was “dealt with” via Mario Draghi and the ECB’s implicit promises to “do whatever it takes.” That apparently includes undertaking QE.
The problem of QE is that it removes those same bonds in question from circulation, sequestered securely within the confines of the central bank (regardless of whether that central bank has made provisions for addressing the direct short-comings of just such an effort). The trade-off is one of bonds for “cash”, but more of modern liquidity concepts than cash, that will on balance lead to “portfolio effects.”
In one sense, the ECB in particular is saying that banks have become “too safe” and the European economy needs “more risk.” It intends not just to force just such an outcome but also to finance it. Banks, for their part, are not quite ready to “comply”:
Weeks before the European Central Bank begins a program to buy about 1 trillion euros ofeuro zone government bonds, banks, pension funds and insurers across the continent are hoarding them for regulatory or accounting reasons.
That may complicate implementation of the quantitative easing program, aimed at reviving growth and inflation in the euro zone. The ECB might have to pay way above market prices, or take additional measures to encourage investors to sell.
“We prefer to hold on to them,” said Antoine Lissowski, deputy CEO at French insurer CNP Assurances. “The ECB’s policy … is reaching its limits now.”
I especially like the phrase “take additional measures to encourage investors to sell”, as you can almost envision some Hollywood Mafioso-type threatening a poor, expensively-suited bank executive not over blood money but on behalf of “monetary” authorities to take their cash. There is an element of comedy here that is un-writable as fiction; nobody could dream just such a scene.
In that respect, perhaps monetary depredations have reached their inevitable logical limitations. The banks “must” be made safe because of the last panic, but banks must be made risky because of the economy.
Of course, the central bankers under this paradigm don’t think in such broad terms, as they see no incompatibility at all. Again, they think there is some precision or mathematics of regressions that can “find” harmony between two largely and seemingly contrary or even irreconcilable forces – as if banks can be made “just safe enough” while also “just risky enough.” That is because an actual economy does so, where organic profit governs that relationship – why can’t central banks simply do it instead by dual-mandate? This is the reason for the facileness and technocracy of jargon, as this is all supposedly objective mathematics rather than anything emotionally explosive like bubbles.
While there are any number of reasons commandment of this kind will fail, it really comes down to the market itself, namely that such forces of “safety” and “risk” are not really homogenous and harmonized unto themselves. It takes all sorts of agents and actions to produce stability from chaos, whereby many people “take the other side.” The relative movement of prices, free from directive interference, acts as ultimate arbiter of what constitutes “risk”; safety results from that. Central banks take no sides at all and simply decree based upon poorly constructed mathematics that are stale by the time they are implemented.
And with such opposing policy intentions, is it any wonder how bubbles are formed? Which “side” wins out in the end? The amount of repression taken by monetary authorities will overwhelm any sense of propriety about even mathematically-drawn “prudence.” That is the case in every bubble, but in this one instance, especially in Europe, the tug-of-war is in the very instrument of both policies – government bonds. The ECB is demanding, reduced to constituent cases, that banks buy government bonds for every government bond they sell to the ECB. Banks are rightfully balking as “why bother?” It’s not just the naked convolution to the whole scheme, it is entirely emblematic and demonstrative as to why bank “capital” is so relatively expensive under monetary repression.
Since, however, the “risk” side always wins in these things, the ECB mafia will show up with the heaviest repression possible.
And yet, somehow, monetary policy is still believed neutral in the long run and that bubbles are market events. Central banks have shown why they cannot command economic performance, but that doesn’t mean they can’t give one hell of a comedic performance. We have taken a monetary ride now into the theater of the absurd.
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LONG PAPER MILLS!
MAKE THEM AT LEAST PRINT SOMETHING!
I think cotton is involved too. Still, mass printing would he bullish for the south, since most paper and cotton is made there.
Evil exists everywhere, admits it, and likes it.
The parasites policy is to counterfeit themselves and their tribal friends all the money they like with OUR money printing press until they get arrested or murdered. No cops in sight, so...
Maybe they they only print one side of the paper because they are running out of ink like they did during the Weimar Republic. FucK remember the Alamo. Remember the Weimar is a better slogan because it is a cautionary tale of what can happen
Weimar is happening, has been happening and will continue to happen until we the people take our money printing press and our government back from the tribe.
I don't think it is happening yet. Wait until the USD is no longer the world reserve currency and until we are no longer the prettiest girl in an ugly girl contest.
They're done with the physical printing already. Federal reserve notes outstanding increased from around $300B in 2008 to nearly $1T today. Withdrew $10k the other day, it consisted almost entirely of the new hundreds. If you're sitting on a stash of cash, might be wise to rotate out of older notes...
Please capitalize South as it is a specific region and not a direction. It is THE region of preference, BTW.
"region of preference" Don't be so picky, cottonpicker. Oops! Cottonpicker.
Cotton has become a big buy lately - got in quite a bit of BAL (etf's) last few weeks. Free investment advice :)
Well the word on the street is that some super fantastic reall,really great financial news is about to be announced.
From what I understand it will be awesome along with some other really cool words! I'm stoked!
Stay tuned PMSNBC is on top of the story, they may even have their god Obozo bring us the info!
Underground sources close to the president state the operation Weimar is under way, and that there will be no limit to the amount of wealth the chosenites can plunder from the American people!
At least the Weimar had a limited military
If you consider the currency as a weapon then they had an impressive military. Unfortunately, only the military can defeat the tribe.
"The idea is simple, which is to say that by repressing the returns on “safe” investments financial agents will be forced, not of their own volition, into “riskier” assets and asset classes."
these fucks Are a disaster when it comes foreign policy, education, and spending. Thry are going to tell me what is best for my money by forcing me to buy risky assests such as real estate and stawks.
fuck these guys. I cant believe the average person is allowed to vote. They have no concept of what the above article means. They also have no idea what the reckless redistribution of wealth through taxes and monetary expansion has done in other countries . Debt left to the unborn to pay. People are allowed to vote despite knowing that their leaders are responsible for thousands of deaths due to our foreign policy.
Is it too early to have a beer at 0800 in the morning?
I have a strict policy: nothing stronger than scotch before breakfast.
A Corona and tomato juice makes it healthy and tasty. If you don't like that then maybe gin and OJ. Else, I'm all for the scotch.
Under the circumstances, not at all; as a matter of fact, what's taking you so long?...
It's obeerthirtyhundred hours here...
Banks should be forced to make loans when they are backed by tax dollars.
At that point loaning money is not borrowing, its monetary expansion by government.
The tax payers bailed these banks out, that essentially amounts to the tax payers OWNING these banks.
These banks should have no public traded shares. . . all the shares should be owned by tax payers and instead of getting a dividend from profits, banks should be forced to loan easy credit into circulation.
Thats assuming we are going to keep operating under the same fraudulent model we have been working under for the past 100 years or so.
If banks were actually legitemate enterprises again, with real money to loan (not funny money that creates itself out of nothing for every loan), then all you would need strong accounting standards to make sure banks actually have every dollar they are loaning out (to keep inflation under check and to keep financial bubbles from blowing up).
Banking is the only sector of the economy that actually needs regulating because the power to issue credit has more influence on the real world than all the laws government could ever write, writing laws is meaningless when you have a sanctioned/protected monopolized money printer with no accountability.
The way banking operates today it is not a legitimate business... its a state sanctioned / protected crime syndicate.
People fighting against regulation for big banks use the argument that banks should be protected under capitalism / free market ideals. . . but I ask you this . . . can you even have a free market when there is one entity or a handful of entites that have the complete power to create unlimited credit/money out of thin air and hand it to themselves and their friends??? what kind of "free market" is that?
In order to have a free market, the unit of transaction has to be regulated either by market principles and valuations (gold standard) or through regulated laws and standards (Stringent accounting laws that apply the same to everyone)
Under the current GAAP system banks look at liabilities as if they were assets.... the standards that apply to every citizen and small business ... do not apply to big banks because their books are "proprietary" and "trade secrets", ill tell you what "trade secret" these banks have. . . its called accounting fraud and counterfeiting . . . ^^ . . .
The banks must have a stake in the loan and share the losses or they will simply continue to recklessly loan money to generate commissions, bonuses, etc for themselves while passin gon any losses to others.
Well said. Banks stole "La cosa nostra" playbook. Buying of judges, usury, counterfeiting, money laundering, and owning politicians. Al Capone, John Gotti, Lloyd Blankfein, Jamie Dimon any difference?
Actually Al was probably the smartest of them all, from a PR standpoint, people loved him and was taken down by the IRS (the 1913 16th amendment). what else was created that year? Oh that's right the "Federal" Reserve.
The Weimar holocaust produced Hitler, not the other way around. If you aren't fighting the evil tribe, you're one of them.
The point of these theatrics is to make the galley slaves row harder ("So the ship of state will go faster for all of us!"), meanwhile keeping the slaves so distracted that they don't notice they're chained to the oar.
"... festering ...."
Sounds like a good word to describe our economy.
The US Dollar will soon be worthless, then the Oligarchs, their corporations and political minions will have to deal with the same reality that we the people have been living with since 1971.
The largest credit bubble, probably in the history of the world, is bursting. In terms of Kubler-Ross, the crowd is still in denial but anger is just around the corner. As global deflation worsens and economies like Greece, Spain, Italy and Portugal get sucked into the vortex, that anger will produce social violence like nothing seen since the last world war. Bursting economic bubbles are never pretty... this one is potentially catastrophic.
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
Circular jerk and you and I are in the middle. You would have thought that after the 25 year "bukkake theater" that Japan has become they would have figured it out. You would think that the smartest people in the universe would figure out that more income inequality leads to stagnant economies. That herding everyone to one investment vehicle never ends well. That with a quarter of ones ( USA) population turning 65 within the next 15 years (10,000 per day) might cause a strain on an already maxed out debt burden ( again look at Japan). That an economy, where health car represents 18% of GDP and manufacturing represents 9% GDP, is headed in the wrong direction, and getting worse.
Then again the central banks are private entities, and their are only responsibility is to their shareholders.
I think the mistake many make is assuming that what is being done to our economy is a result of some larger 'policy'. They can call it policy if they wish, but to me it looks more like what happens when an alcoholic starts going on a drinking binge.
There may be a deliberate decision made to gulp down the first few drinks. But after that, there is no "policy" that makes them keep drinking...they do it because they can't HELP themselves, it's now out of their control. They may claim that there is a policy behind it, but that is just the excuse all alcoholics come up with to explain their actions. The actions come first, the 'policy' is created afterwards to explain the behavior. And of course any policy will involve further drinking, because that's the real motive.
The big banks will continue to drink because THAT'S WHAT ALKIES DO. Is a hopeless drunk any more respectable because he comes up with clever reasons to drink and says he has 'a plan'? All these 'monetary policies' are the equivalent of "My doctor says whiskey is good for my heart.", or "It helps me to sleep.". Yeah, he weaves a convincing story, but you know it's gonna end where it always does, with him passed out in a pool of his own vomit, and you cleaning up the mess.
Giving banks any more money through "monetary policies" is like buying the drunk another round. The only solution is to cut him off.
Banks should be 'cut off' in the sense of being forbidden to sample their own product. A bartender handles all the booze for lot's of people, but what bar would hire an active alcoholic bartender to run their place? So why do we have 'money drunks' running our banks?
Banking must return to being a dull, gray, boring profession. With the emphasis on safety and stability, not profit. Profit-making is not the proper domain for the institutions that manage our money. Profits are supposed to come from the PRODUCTIVE sector, the sector that MAKES and DOES things...we have forgotten this.
Monkeys in charge. What else can anyone expect?
Why rotate out of older notes? Think they will stop accepting them for security reasons?
Now they made fiat money the mother of all bubbles (thru the bond market and their QEs, Twists, Tangos and whatever backdoor bailouts and printing schemes we don't even know about, a +1 Q$ derivative book etc etc), and when it pops it will be a mess like nothing the world has seen before...