This page has been archived and commenting is disabled.
The Test Of Central Bank Omnipotence May Be Upon Us
Suddenly what was discounted as a potential “isolated event” has come full circle to show just how contagious it may very well be. e.g., Greece.
Over the last few months the financial media has not only turned deaf ears to the drama, (out of boredom) they have also blindly discounted any contagion effects as “isolated” at best – relative periphery contagion at worst. In other words: Any and all problems can be contained, mitigated, or solved by none other than your friendly neighborhood Central Bank. After all, if you listen to the so-called “smart crowd” these bankers have powers even Zeus would envy.
So why worry about a little turmoil at the foot of Olympus? After all, the gods haven’t been seen nor heard from in millennia. Central Bankers give press conferences live and in person. Thunder vs a press conference? No contest in today’s role for proving omnipotence. All one needs to remember for proof is Mario Draghi’s now famous chortle of “having a bazooka and willing to use it.”
However, just as in any hero-worship endeavor one thing must remain constant or it all falls apart. Those that worship can never witness any event regardless of how minor: that the gods are not all that they portend to be. In other words: Allow just one moment of truth to be witnessed showing frailty instead of omnipotence – and the whole ruse falls regardless of the size and strength of the monuments and temples built to honor. For they will be abandoned. Sometimes slowly. At others: all at once. It doesn’t take much.
A great analogy to express this was portrayed in the movie sequel Iron Man 2 (2010 Paramount Pictures) when the characters played by Mickey Rourke, and Robert Downey Jr. are conversing in a cell about the who, what, and why of Rourke’s rampage at the speedway. Everyone in the room seems content with the idea or fact they contained or stopped Rourke’s character Ivan Vanko in his tracks. Yet, as Rourke explains to a mystified Tony Stark played by Downey. He had already won and it was Stark who didn’t understand as he explains: [laughs] “If you could make God bleed, people would cease to believe in Him. There will be blood in the water, the sharks will come. All I have to do is sit back and watch as the world consumes you.”
This onerous theme as well as implications just might be playing out in Greece. Only this time, it’s not in a fable, or on the big screen. Rather – it’s in real-time with real consequences for the financial markets as a whole.
In my opinion the utter faith in Central Banks has never been more enshrined within not only Wall Street, but the world as a whole by media, politicians, business leaders and in some ways the general public at large. For it’s no longer seen as “what a politician will do to enhance the business environment” rather it’s what the Central Banks are doing. Central Banks have morphed into exactly what they were supposed to be the antithesis of: The political.
Central Bankers can disavow till their blue in the face that they don’t engage in politics. However, it is not lost on anyone that a president or other political leader can discuss all they want about their nation and their economy. Yet, for all intents and purposes – its moot. Today, it’s the Central Bankers that move markets, garner headlines, as well as carry a bestowed political relevance with their proclamations. Not the other way around.
One doesn’t need any more proof of just how high of a pedestal Central Banks have been put on than the meme that is now recited in style and reverence resembling a chant or incantation when any potential market hiccup occurs: “The Fed’s got your back.” Now that meme as I inclined before has shifted from the financial markets – to the political.
I use as example the following headline from Bloomberg™ this past week: “ECB Has Your Back If Greece Breakdown Tips Markets Into Turmoil.” Or said differently: The fate of nations will rest upon the shoulders of the Central Banks.
Whether one agrees or disagrees with Greece’s financial predicament within the Euro Zone (EZ) one thing is clear above all else. It is not the political will and discourse that will decide whether or not the European Union will hold together. It will be whether or not the ECB can save the political from itself. i.e., Ring fence any potential contagion effects to the periphery.
This was once the place of the politicians. Not any more. That is now subjugated to the monetary policy arm. And it’s a dangerous switch in my opinion for this reason: Banks or bankers omnipotence (or faith there of) rise and fall on one thing – and one thing only: their ability to respond and project control of the money. But (and it’s a very big but) money is only one part of the political arsenal. Important of course. But again, it’s only a part. On its own it can cause more problems than it can solve.
Politicians (as a general rule) control so much more that can be used to bluster or fortify a meme or intent. i.e., the people, the laws, the nation as a whole, the taxes, it’s war machine, etc., etc. It’s not a distinction without a difference. An example can be: You can have all the money you need to buy off an adversary – but without an army willing to protect you, they might come back and take what you have left. Or worse, convince your army to join them and split the bounty.
Pure monetary warfare or monetary political maneuvering is more susceptible to unforeseen consequences that can backfire more than almost any other. Remember my example earlier from the movie: All one needs to do is show “they can bleed” and everything changes. And I do mean everything!
Whether or not Greece defaults or exits the Euro Zone is an unknown as I write this. However, no matter what one thinks about whether or not it is right or wrong is inconsequential. The real underlying issue that has other nations within the EZ itself watching is whether or not Greece inflicts a wound to the Central Banks for all to see. Because Greece, for all the hardships it may entail will still be a nation one way or another. Possibly with new alliances (e.g., Russia) in which bankers miscalculated the political ramification focusing only on the monetary as if it were the only issue to be considered. Greece may in fact make alliances that benefit it far greater. It’s an unknown. However, it will be watched very carefully by others.
Italy, Portugal, Spain, and who knows who else will be looking and watching carefully for the slightest showing of injury that may rock the Central Bankers (particularly the ECB) back onto their haunches. And if that were to happen the shift in intellectual thinking (i.e., political gamesmanship) as well as monetary positioning will ripple through the financial markets in ways none of us may be able to comprehend at this time. Especially the bankers themselves.
Add to this the perfect storm that may be brewing elsewhere in places like the once “savior of the world economy” China. Where it too may need to put its own central bank through the test of omnipotence with a potential stock market meltdown of near biblical proportions now brewing. Where a decline of 50% would be seen as a godsend rather than what might be building. Not to say anything about the impending implications of a raising of rates in the U.S.
So much for the meme Wall Street mavens have recited ad nauseam “China will lead us out of the economic malaise.” Sure they will. How’s that been working out? Banks in China today are scrambling trying to quell jitters reverberating within both the markets of Asia as well as the political. And now there’s potential on top of this for an EU break – as well as contagion fears? No problem if you’ve been listening to the financial mavens: “Just be diversified.” Yeah, sure.
Already this weekend only hours in FX brokerages have already began issuing “close only” mandates to account holders in preparation of a final EU determination on Greece this weekend. A lot of good “diversification” is if you can’t put on the trade to begin with because out of the blue brokers in the most liquid, and vast market place begin gating their doors. But the pontificates via the next in rotation fund manager on (take your pick of networks) never eludes to such a possibility.
And speaking of gating, don’t forget that little line along with its new regulation you now see on every “money market” statement where you have “money” or “cash” allocated. The market that basically controls and is intertwined within all the markets globally. Probably the most important single market to structure stability as a whole. e.g, The Money Market.
And to what line(s) am I referring to you ask? Well for those that don’t remember (or don’t bother to open their statements) let me highlight it here. To wit:
“Money Market funds are not insured or guaranteed by FDIC or any other government agency and although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose by investing in the fund.” Ah, yes, as important as that line might be, the more important yet overlooked is the new regulations that allows those funds to “gate” your ability to access. Gate as in – No… you can’t get at it.
If the markets for whatever the reason do suddenly show signs of contagion fears (or actual contagion) and things once again startle even the most prevalent Central Bank devotee. Don’t be surprised if people begin eschewing the knocking of their heels three times repeating “I believe, I believe, I believe.” And instead take steps to not only walk, but run to that dispenser of truth not found in any confessional booth. i.e., ATM machines everywhere.
For the true test of Central Bank omnipotence may be upon us. All once again, a test that’s held at the foot of Olympus. What irony.
»
- 17529 reads
- Printer-friendly version
- Send to friend
- advertisements -
CTRL+P at the Fed solves all, no?
ctrl ouch
No it doesn't
Duh
few men have virtue to withstand the highest bidder http://www.philiacband.com/propaganda.html
There is a run on popcorn at the Zerohedgeville Kwik E Mart. Better get there fast, Apu is reaching for the 12 guage.
Investors will want to buy gold, US$ and bonds as a flight to safety, selling risk assets including stwalks
CB's will intervene with all of their might to make it look like all's A-OK Hunkie Dorey, buying stawlks, selling gold and buying bonds to keep rates down.
Janet will extend bazillion $ of swap lines to make good for collateral calls (US $ and $ denominated treasuries...whoopie! Where they gonna come from? Janet gonna loan them (swap) to ECB et al as well)
Watch the M's and reserve base expand! Watch the Fed's other asset category on their balance sheet grow at a humongoloid rate!
Should be fun.
(PS I agree with the popcorn, and throw in some Vernors ginger ale and we got us a ball game. This should be a repeat of the Hearns Haggler fight. BRAWL!)
I still have that fight on VHS recorded back in the 80's live on terestrial TV lol Happy days them ( compared to now! lol)
so sweet seeing hearns getting "dropped still standing" by Haglers SOLID right hand in the 3rd
https://www.youtube.com/watch?v=9VI-M9Yw-28
Greece is a microcosm.
Wow. Didn't think I really needed the '/sarc' tag.
Yes we can.
So if printing is such a great idea, why does anyone pay taxes?
You'll have to ask the Federal Government why that is.
As far as the U.S. Federal Reserve goes "Mission Accomplished."
<<So if printing is such a great idea, why does anyone pay taxes?>>
For control, tracking, and CONfidence.
At least until the marks -- err, 'taxpayers' -- figure it out, anyway....
I remember once watching a computer simulation of a nuclear chain reaction. I think that is a fit metaphor for the world economy.
Go to https://www.youtube.com/watch?v=0v8i4v1mieU for a nice simulation.
ASIA
Chinese real estate has collapsed
Chinese stock bubble has just turned down
Austrailian real estate is in a bubble and fragile because of the link between their economy and China.
Japan is a dead man walking. It is a house of cards.
EUROPE
The European Union is based on faulty assumptions and these flaws are now causing a blow up.
Greece is about to default. No one can predict the ripples from this event, but there are bound to be major banks at risk.
Spain and Italy look to be headed down the same path. In fact, Greek default will increase the odds of these other two failing. Italy, because of it's size, would be a huge event for the Euro zone and global economy if it went the way of Greece.
NORTH AMERICA
Canadian real estate is a bubble and in the process of collapse
Canadian oil industry has been laid to waste.
The issues with the USA have been discussed in great detail and do not need to be repeated. Just note that we are already in the middle of an economic contraction, have several active bubbles and the FED is out of options.
SUMMARY. The whole thing is ready to blow and there are multiple potential triggers.
Most excellent fission simulation
But I think this video says it better
https://www.youtube.com/watch?v=eem7d58gjno
They forgot the WTC....
True.
Yet, following a global financial catastrophe, everything will still return as before, with the political & corporate leaders selling to the public, as solution, the necessity of relying upon central banks, their fiat money and monetary tools.
Nothing will change until a true revolution takes place globally. Yes, globally, because the Fed is just one of the hundreds of central banks, all using the same monetary tools.
And I cannot see that happening. The structure and diffusion of the current financial system is so cancerogenous that will revive itself in any condition.
Give bread and circus to people and they will not bug you too much.
"SUMMARY. The whole thing is ready to blow and there are multiple potential triggers."
My summary: There's still time to kick the can a bit further.
<<There's still time to kick the can a bit further.>>
In a centrally-controlled fake 'market', this is always the case, right up until the jig is up. It's anyone's guess whether this is the real earthquake or yet another warning tremor.
The tremors have been getting rougher, and occurring closer together, for the past 2 years.
People may soon realise what the con in con-fidence is really all about.
After all, the system has been chugging along based on two fallacious pillars.
First that paper currency is really money.
Secondly, that promises by politicians will be kept.
Or as the joke goes:
POLITICIAN to a PROSTITUTE: "I am a politician but I am still honest."
PROSTITUTE REPLIES: I am a prostitute but I am still a virgin.
Release The Kraken!!!
There hath he lain for ages and will lie
Battening upon huge seaworms in his sleep,
Until the latter fire shall heat the deep;
Then once by men and angels to be seen,
In roaring he shall rise and on the surface die.
* * *
The Kraken Wakes.
(Those huge seaworms look a lot like the tentacles of a vampire squid.)
The inevitable failure of Central Banking is guaranteed.
Whether or not it is upon us is debatable - when Gold is $20,000/troy ounce it will be.
20k an once? Oh how I wish.
May be = maybe not.
Chief Justice Roberts, is that you?
This article is a bit pre-mature IMO. For today is Sunday, markets have not opened yet. Absolutely no blood in the streets or market yet.
Show me a 1929 market crash first. Only then will I buy the dip.
If I lose my job..........So what! More time for hunting, fishing, drinking beer.
I'm out of debt, over 50, I'm tired of working anyways.
NO DOLLAR FOR YOU!
1929 was the warm up.
Had one bought the dip in 1929, by 1932, one would most likely be wiped out.
1932 was when the real blood was flowing.
http://stockcharts.com/freecharts/historical/marketindexes.html
Thanks for the chart.
Truth be told, I have a limit order in for GDX @18.00.
Another one bites the dust.
<<For today is Sunday, markets have not opened yet. Absolutely no blood in the streets or market yet.>>
Seconded. That`s the beauty of a central-bank controlled propaganda 'market'.
And if it's just peasant blood in the streets... then it's STILL not the big one. It's too soon to call yet. Although I did enjoy Tyler's deer.
As huge as this tremor is, we won't KNOW it's the real quake until the storm starts... and its rain is banksters.
The bankster puppets believe it's under control, and that they have the upper hand on Greece, obviously. They're being very careful to not set any undesirable precedents (referendums are anathema) that would come back to haunt them when the rest of the dominos fall. Here's how the establishment sees it:
"Although market fallout from the Greek crisis is expected to last at least until the weekend's plebiscite, long-term contagion will be contained, according to most experts. This is partly because private-sector exposure to Greek debt has been cut by almost 85 per cent in the last five years."
"While the unfolding situation in Greece could spark some contagion fears, it must be remembered that the broader situation in the eurozone is not the same as it was in 2010 or 2012," said Commonwealth Australia Bank's senior currency and rate strategist, Peter Dragicevich."
"Greece may generate some market turbulence, given the uncharted territory we are in, but it should not generate the same sustained systemic fears for financial markets or the global economy as it did in the past," he said."
http://www.smh.com.au/business/markets/euro-plunges-as-traders-head-for-...
No bureucracy can solve anything. Fed or no Fed, this is what is gonna bring the US down. WAR! >>>
https://biblicisminstitute.wordpress.com/2015/06/25/warmongering-vs-econ...
Well... On the same site I read:
"Can a Man Have Many Wives?" => YES.
https://biblicisminstitute.wordpress.com/2015/05/12/can-a-man-have-many-...
From which I ask: Can a woman have many husbands?
@panem. I believe that is the case, or used to be, in Tibet. One woman married all the brothers in a family. The extra women went into convents (not necessarily chaste but did not produce children), a primitave way to keep the population down.
What, another false flag? Let's get real, nobody in their late teens early twenties want to go to war. Look how messed up our vets are.
I'm a vet and have a big mouth. Military recruiters should be hog tied and mouths taped shut. Bottom line kids, DON'T SIGN ON THE DOTTED LINE. You can thank me later.
WAR is bullshit! Nuclear war is GAME OVER! The video game doesn't start over kids. That's it, finished, dead, no reset button. Nuclear war is absolute destruction on a global scale. No place to hide, no place to run.
If nuclear fallout doesn't kill you then starvation will.
I do have a full armory, ammo, supplies, water, gold, silver, food, booze. That don't mean shit! Checkmate mother fucker, game over no matter what I do.
ECB rate hike by Friday.
Oh the carnage! Imagine, lol!
True Black Swan. No one is expecting the ECB to raise... all eyes on the FED :)
What??? The Goldman-Sachs alumni are NOT omnipotence??? OMG.
There is nothing else! Hasn’t been since the collapse in ’08, and maybe well before that. For forty years Silicon Valley innovation has been propelling everything upward, then came the I-Watch. When the Valley property bubble goes, it will be nuclear and sweep across the country. Yes, 95 million people fully believe in Fed omnipotence, they have to. Keep rates near-zero, offer no-qual loans, do anything to keep people borrowing and buying. They are buying their own jobs. But the entire egg-shell economy is coming apart. We are Greece, just a few years behind.
There will be Obamavilles and tent cities in every community soon. They will erect a tent city in the new Apple headquarters parking lot as hundreds of thousands walk away from their bubble-priced houses, now only find part-time work flipping burgers! Tech layoffs will soar and all those high-priced Teslas will be parked on the repo man’s lot. “Big sale, slightly used Tesla ‘S’ models, many to choose from, $7,500 cash. LMAO…it is always that way…patience bears, party almost over.
Gold at “20k an ounce? Oh how I wish.”
So wrote “BurningFuld”.
This is actually a very modest target.
Hardly anyone understands the central role gold plays in the world’s monetary systems: it is the backing, or collateral, for probably all currencies and bank reserves on the planet.
You come to this conclusion once you realize gold stands at the head of every assets statement issued by the world’s central banks. It is there, to repeat, because it is the ultimate collateral for all currencies and bank reserves issued by such central banks.
In the case of the US, gold that may or may not be at Fort Knox serves as collateral for all Federal Reserve notes (the scrip we carry in our pockets); all US Treasury notes; all US bank reserves; all “cash equivalents” reported by corporations (on a world-wide scale); probably all Mortgage Backed Securities; and more.
Taken all together, there are some $15-$18 trillion that are collateralized by Fort Knox gold… if any there be.
What gold price is necessary to cover these liabilities… $70,000… $140,000… $infinity?
Don’t hesitate to have your lawyer, professors and accountants verify my findings.
<<Taken all together, there are some $15-$18 trillion that are collateralized by Fort Knox gold… if any there be. What gold price is necessary to cover these liabilities… $70,000… $140,000… $infinity?>>
When gold hits $20,000, then it won't be long until the higher numbers come faster and faster. That won't be gold rising, but $$ spiralling into a black hole whose 'price' changes as soon as it's settled.
That's how loss of confidence works. No matter how 'high' gold goes that way, gold-holders won't actually be 'rich'. It's just that $$ holders without real assets will be 'poor' no matter how many $$ they hold.
100 oz. will still be 100 oz. It's just that those oz. will have all the buying (or saving) power, in a world with a rapidly decreasing number of goods. In that world, for at least awhile, seeds and land and water will be pretty important too. Those will also hold some buying power.
It's inevitable. But we should be careful what we wish for. Especially when we're this likely to get it.
So what happens when the counterparties on the other side of your investment close their doors, or refuse to deliver your funds?
There is good reason not to trust Zeus… stone masons and wood carvers are almost always atheists; for they know of what gods are made.
And the problem, from our perspective, is, ‘How do we protect ourselves from their murderous political system?’ How, for example, do we protect our property (from physical gold, to businesses, to stocks and bonds (domestic and foreign)) from seizure by the Department of Homeland Security (DHS)? Furthermore, how do we protect ourselves from informers now being recruited, trained and protected by the DHS?
By the act of Congress that established the DHS a system was created by which informers could make false allegations against anyone they please with near-total impunity. Of course, such informers aren’t described as informers; rather they are given the title “submitting person” and the DHS Act provided that their falsehoods will never be examined by any court or legislature or law enforcement agency. The legislation even specifies how this immunity is obtained. The “submitting person” only has to give an “express statement” that his lies were “voluntarily given” and that he expected “protection from disclosure”. It’s all there, in the act that created the DHS.
I’m sorry guys, but silly season is over. Even if you own physical gold, live in a cabin in the woods along with a stash of ammo and AK-47’s, you lose. If you don’t fall to the horde of hungry homeless, you will fall to DHS death squads. All the homeless have to do is to wait until you collapse from lack of sleep (24, 48, 72 hours), then they march in, slit your throat and… let your imagination run wild.
If you own stocks or bonds, guess what: you’re depending on criminal and useless classes to deliver your purchasing power at the moment of their greatest victory. Did I mention something about ‘silly season’?
If you want to survive, you have to combine with others of like mind for the purpose of mutual protection, among other purposes. The big question now is, ‘HOW is this to be done?’ And the quick answer is, ‘You must establish First-Amendment assemblies – the only historically-proven method by which men have made their lives and property secure from rule by thieves.’
The American Revolution, for example, was powered by a large network of such assemblies: from town meetings, county meetings, state conventions and, ultimately, to Continental Congresses.
Let’s be realistic: this solution won’t be easy or quick… unprecedented adventures never are.
According to Macquarie Research:
http://personal.crocodoc.com/lHeFs3w
China drama & Greek farce
Are Central Banks at the end of the road?
Greek and Chinese dramas question role of Central Banks…
- The latest developments in China and the Eurozone inevitably invite the question whether Central Banks are coming to the end of the road. Given the limited impact of their policies on real economies with stimulus largely being confined within walls of financial assets, has the time of reckoning finally arrived?
- As discussed in the past (here & here), the only sustainable LT outcomes for the over-leveraged and over-supplied global economy are either: (a) allowing the deflationary cycle to go through, thus eliminating global excess capacity in service and merchandise economies; (b) elimination of excess debt via some form of hyperinflation and/or co-ordinated debt cancellation; or (c) banning capital markets via nationalization. Given that neither of these alternatives is attractive, involving pain for either borrowers or savers; intergenerational transfers or courting sharply lower ROIC, CBs would rather kick the can down the road in the hope that a solution would be eventually found.
…and should CBs place monetary policies in neutral gear?
- PBoC’s half-hearted attempts last week to slow the pace of appreciation of the equity market have inevitably and predictably resulted in severe correction. The double-barrel reduction in interest rates and RRR on Saturday is a belated realization that it is courting a significant economic backlash. As discussed here, we do not believe that China’s de-leveraging is either possible or desirable. Having reached leverage of ~3:1, any debate about the evils or virtue of debt has passed a long time ago, and the only viable choice from now on is to continue leveraging, though perhaps at a somewhat slower and safer pace.
- In order to continue leveraging, PBoC has to make sure that: (a) there is no sharp correction in any of the key asset prices; (b) at least some asset prices are appreciating; and (c) there is no further contraction in nominal GDP. This requires a combination of exceptionally stimulative monetary and fiscal policies as well as trust that a country is not yet in a liquidity trap and that it is capable responding to stimulus in safeguarding nominal GDP. The game is no longer about reaching 7% real GDP growth but avoiding zero nominal GDP.
- The same dynamics are playing out in Europe. The battle is between politicians who have not yet grasped that deleveraging is no longer feasible, and the ECB, which is fully onboard. Whether Greece is allowed to exit does not alter the basic argument that the numbers do not work, unless leveraging continues.
China is at very early stages of stimulus
- We maintain that China is at an early stage of significant (probably the largest globally) stimulative action. We expect that over the next two years, RRRs would be reduced to historic levels (i.e. 5-6%); interest rates would be lowered to zero and fiscal spending would become much more aggressive (including multiple banking re-capitalizations). The only question is whether China would send a massive inflationary pulse through global economy or would aim for more moderate impact. Initially, the PBoC would be aiming for moderate outcomes, ensuring support for asset prices but avoiding more disruptive action. However as we progress into 2016-17, more drastic actions might be needed. In the meantime, we remain O/W MSCI China, as equities remain the least systemic asset class that can be leveraged, at least for now.