The G-30 Group Of Central Bankers Warn They Can "No Longer Save The World"

Tyler Durden's picture

In a detailed report by the Group of Thirty, central bankers warned that ZIRP and money printing were not sufficient to revive economic growth and risked becoming semi-permanent measures. As Reuters reports, the flow of easy money has inflated asset prices like stocks and housing in many countries but have failed to stimulate economic growth; and with growth estimates trending lower and easy money increasing company leverage, the specter of a debt trap is now haunting advanced economies. "Central banks have described their actions as 'buying time' for governments to finally resolve the crisis... But time is wearing on," sending a message of "you're on your own" to governments around the world.

The G30 begins their report rather pointedly...

Central banks worked alongside governments to address the unfolding crises during 2007–09, and their actions were a necessary and appropriate crisis management response. But central bank policies alone should not be expected to deliver sustainable economic growth. Such policies must be complemented by other policy measures implemented by governments.

 

At present, much remains to be done by governments, parliaments, public authorities, and the private sector to tackle policy, economic, and structural weaknesses that originate outside the control or influence of central banks. In order to contribute to sustainable economic growth, the report presumes that all other actors fulfill their responsibilities.

Roughly translated... central bankers are saying "you are now on your own."

Central banks alone cannot be relied upon to deliver all the policies necessary to achieve macroeconomic goals. Governments must also act and use the policy-making space provided by conventional and unconventional monetary policy measures. Failure to do so would be a serious error and would risk setting the stage for further economic disturbances and imbalances in the future.

And the "need to exit" appears to be front and center for The G30 bankers...

There seems to be an almost unanimous view that monetary policy in the major AMEs will have to be normalized at some point. However, even if views differ about what precisely normal might mean, presumed dates for exit also differ due to different countries being at different points in the business cycle. There is also agreement that a danger exists of exiting too soon, thus aborting a nascent recovery, and also of exiting too late, thus encouraging some combination of higher inflation and other imbalances that could also weigh on recovery.

 

However, where serious disagreement arises is when it comes to discussing which danger is the greater. Those worried about too early an exit point to the example of the Federal Reserve in 1937. In contrast, those worried about too late an exit point to the inflation that followed the Fed-Treasury Accord in the late 1940s and to the inflationary surge in the early part of the 1970s.

 

In recent years, distortions in financial markets and the effects on EMEs have also moved much higher up the list of concerns of this latter group.

 

While reasonable people can disagree on such objective issues, a number of political economy factors seem to make exiting too late the more likely outcome.

 

First, there is great uncertainty concerning the consequences of tightening.

 

Second, in some cases it will in fact be clear that tightening will reveal some debts as being unserviceable, and some financial institutions as undercapitalized. Central banks will then be asked to wait until these other sectors have become more robust, which could well take a long time. The danger is that debt levels will rise with the passage of time, strengthening the arguments for still more forbearance—the debt trap discussed above.

 

Third, debtors will obviously resist the tightening of policy. Since governments are struggling to manage record-high sovereign debt levels, they too will be tempted to put pressure on their central banks to push back tightening as far as possible.

But delaying an 'exit' has costs...

Wicksell, Hayek, Koo, Minsky, and others have, over many decades, identified a variety of theoretical concerns arising from the excessive expansion of money and credit during booms. Rising inflation, investment misallocations, balance sheet overhangs, banking sector instability, and volatile international capital flows were all highlighted as threats to future economic stability. Moreover, by 2007 it was evident that these were matters of practical concern as well.

 

The policies followed by the major central banks since 2008, while contributing to stability in the short run and conceivably avoiding a second great depression, might also have aggravated threats to future stability. These policies have had undesirable macroeconomic side effects both in the AMEs themselves and in EMEs. Admittedly, in the latter case, the policy responses of the EMEs themselves to inflows of foreign capital have also played a contributing role.

 

"Capital losses would affect many investors, including banks, and the process of extend and pretend for poor loans would have to come to a stop," the G30 report said.

 

With the consequences of an exit from easy money so unpredictable, the G30 said the risk was of exiting too late for fear of sparking another crisis.

And so, while 'exit' is seen as urgent, it is unlikely...

"Faced with uncertainty, the natural default position is the status quo," the G30 said.

In other words more of the same... and while  The G30 are careful to note the glass-half-full persepctive of the future, their "endgame" scenario of continuing weak (or even weaker) growth  is troubling...

Should the global economy stay weak, or indeed should it weaken again as financial markets overshoot, we could face the possibility of debt deflation. The almost 40 percent decline in commodity prices since mid-2014 could be a precursor of such a slowdown. In this environment, risk-free rates would stay very low and there would be no exit for monetary policy.

 

Nevertheless, the current prices of many other financial assets would be revealed as excessive. Capital losses would affect many investors, including banks, and the process of extend and pretend for poor loans would have to come to a stop. In this scenario, for all the political economy arguments presented above, attempts might nevertheless be made to rely on monetary policy to restore demand. However, just as past efforts have failed to gain traction, renewed efforts would likely have a similar outcome. This would be particularly likely if the overhang of debt had worsened in the interval as has indeed happened over the last few years.

 

In such circumstances, governments would also be faced with chronic revenue shortfalls. This could lead to a worst-case situation where deflation would actually sow the seeds for an uncontrolled inflationary outcome. Governments with both large deficits and large debts must borrow to survive, but worries about debt accumulation might imply an increasing reluctance on the part of the private sector to lend to them at sustainable rates. In that case, recourse to the central bank is inevitable, and hyperinflation often the final result.

And the side effects of central bank policies during the crisis is still more worrying...

Central banks see their actions as buying time for governments to address problems that are essentially real, not monetary. However, governments have thus far not reacted as necessary. Recognizing the political difficulties of addressing these underlying problems, they prefer to believe that central bank actions will be sufficient to restore strong, stable, and balanced growth. Thus, they are strongly tempted to forebear in the pursuit of policies that might be more effective. The longer this standoff persists, the more dangerous it becomes as the undesirable side effects of current central bank policies continue to cumulate.

Which is exactly what Macquarie hinted at... the academics will be the first to note that policy escalation may be required (helicopter money).. and then policy-makers have the ivory tower to lean on when they unleash it.

*  *  *
Finally, The G30 admits - it's all an illusion...

Central bank policies since the outbreak of the crisis have made a crucial contribution to restoring the appearance of financial stability.

 

Nevertheless, for this appearance to become a reality, underlying problems rooted in very high debt levels must be resolved if global growth is to be more sustainably restored.

So, the bottom line, reading between the lines of this 80-page report, is that

Central Bankers know their policies have done (and will do) nothing to promote real economic improvements, are puttingh pressure on governments to do something (anything), admit that is unlikely (because the central bankers have always saved them before), expect extreme policy measures to become the status quo (despite admitting their failure) for fear of any asset weakness, and suggest more measures might be needed (which have led to hyperinflation in the past).

But apart from that - everything is awesome!!

*  *  *

Full G30 Report below...

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greenskeeper carl's picture

"central bankers can no longer save the world"

 

Thats fine, I never expected them to. But it would be nice if they could stop actively destroying it. Its easy, just stop existing. Hell, Ill throw in your full retirement benefits for them to stay at home and do nothing, it would be far cheaper in the long run.

Save_America1st's picture

to the CB scumbags:  PLEASE STOP "SAVING" US!!! 

 

You've all done quite enough already.  The only other thing you could do for the world at this point is to rot in prison for the rest of your lives. 

MANvsMACHINE's picture

When have they ever saved the world? From the very beginning, all they've been doing is slowly destroying it.

Bumpo's picture

You Break it, You Fix it.

Keyser's picture

They had their chance to fix it after the 2008 collapse, but no, their greed knows no bounds... The only recourse now is to line up all the fucking central bankers in the world and lop off their heads on public television... Long guillotines... 

two hoots's picture

Fix the blame after they screw it up. 

Antifaschistische's picture

Central Banking has never created a cent worth of wealth for the aggregated economy...it only efficiently masks the real problems, while funneling wealth via it's virtual counterfeiting operations to big government, big banking, and big business elites.

That is their role...they are the Rule Makers, the arbitrators of the Haves and Have Nots, they are the financial judge/jury/and executioners.

They must be destroyed.

Arnold's picture

Bernanke defense.

 

My shoe shine boy recently returned from the G -30 meeting..............

El Oregonian's picture

This is what happens when the Gov't Goat runs dry. The milking faucets couldn't go on indefinitely.

The day of reckoning is upon us. Prepare for consuming empty cans...

Winston Churchill's picture

Thats the ten minute warning.

Duck and cover.

lincolnsteffens's picture

"Central banks have described their actions as 'buying time' for governments to finally resolve the crisis... But time is wearing on, and (bond) purchases have had their price," the report said.

What a crock of shit. It is the Central Bankers and the wizards that own them who created the legislation and bribed the political class to enact it into law. Now they say they have done what was necessary to allow governments time to fix the mess the elites created! WTF

I think putting the criminal elites in jail for money laundering, market manipulation, usury for credit card debt, mortgage fraud might be a good start. Then real money has to be re-instituted and exchanged for the fake debt digits of corporate scrip. If the Central banks want their debts repaid give them their damned fiat and digits back.


Keyser's picture

To hell with putting them in jail as they will just bribe their way out... I like the chinese solution, once found guilty they are taken out back and get a bullet in the head... No appeal, cheap, easy, clean and no fuss... 

Big_Hitman's picture
Big_Hitman (not verified) turtle Oct 11, 2015 7:23 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.wallstreet34.com

CHoward's picture

Cool.  They've admitted they've kicked the can as far down the road as they can and now it's up to the governments to do the rest.  Well - that means for us here in the U.S. that we're totally fucked.  We have a government that is gridlocked on the simplest of items - of course unless it has something to do with spying on it's citizens and padding their own pockets then they're very proficient. 

HoserF16's picture

Oh that's ok, Libertarians and True Americans will save the country. After that, we'll save the world by hunting-down Central Bankers and the politicians that supported them. Nuff said.

Keyser's picture

And your solution is to allow the central planners to continue to ass fuck every tax paying citizen on the planet? I don't think so Ronnie... In the words of the village idiot GWB, you are either with us or against us, take your pick, carefully... 

Sleepless Knight's picture

We no longer have the ability to destroy the economy any further. Fixed it.

yogibear's picture

They'll keep printing.

On ABC's This Week, Ben Bernanke's only advice to improve the U.S. economy was for the Federal Government to spend more money.

Tasty Sandwich's picture

Expand or collapse: there is no in-between.

The equity markets are key to maintaining the illusion that everything is all right.  Most people don't pay attention to them on a regular basis, but a fifty percent collapse would shatter the illusion and incite panic.

FreeShitter's picture

QE/ZiRP -> NIRP.....then RIP

Jack Burton's picture

risked becoming semi-permanent measures.

risked? most big market participants consider since 2008 that all this is the new world economi order. speculation now holds a clear government and central bank guarantee. speculation is under government protection, no losses will be allowed to be booked, but instead being put either directly or otherwise on the public balance sheet.

you have seen market reaction to any and all rumors of a return to market set interest rates! panic, collapse.

VWAndy's picture

As it is with junkies. Any excuse to do more flys.

Haole's picture

To avoid responsibility for destroying it they have to claim to not be able to save it?

The warmest spots in hell are reserved for these psychopaths...

knotjammin2's picture

Just have them report to the National Mall in DC.  That's where we will be erecting the gallows for the 535 that helped put us in this situation.  Fuck me....I'll deal with it.  Fuck my kids......now that is a different story.  Absolute hell to pay for the politicians and bankers.  Their days are numbered all over the world.  

TheAntiProgressive's picture

So for countless years now the CBs have insisted their path was "the right path" and that "they knew what they were doing" so shut up and give us the rope. The policies they have promoted and implemented have destroyed the "free market" with a tip from the politicians and "trade policy". Now the CBs left with an ability to create even more "free money worth a crap" out of thin air now these same "know-it alls" now toss their hands up and say "Now, we can't fix what we have broke". We have created this massive worldwide deformative economic mess and YOU have to fix it. Get some rope and find a tree. Back a long time ago it was a capital crime to "counterfeit" money so by historical standards we have justification to string these people up and nationalize any assets they have.

yogibear's picture

Fed's Zimbabwe economics until there is hyperinflation.

Keep insane printing until the dollar free-falls.

 

Sudden Debt's picture

you're on your own...

 

That's being said by private central banks. And what do you think when you pull the cookie jar from the politician hands to solve problems?

They'll ask for it... and take it.

Politicians can't solve problems, they can cover them with more debt and loans but that's it.

I've never heard of a fundamental solution to any problem from a politician. No one they've actually acted on.

Latitude25's picture

Only chumps believe that QE ever stopped.

Lynn Trainor's picture

I don't think it would be expected that a cause and major source of the destruction would hold the solution.

Spiritof42's picture
Spiritof42 (not verified) Oct 11, 2015 5:45 PM

That's like doctors finally admitting blood letting doesn't work.

grunk's picture

"...central bankers warned that ZIRP and money printing were not sufficient to revive economic growth and risked becoming semi-permanent measures."

 

Wow, who could have reach that conclusion by now?

jcdenton's picture

Only that the entire G20 was informed in as late as 2010, how they could in fact save the world .......................... every swinging dick and vagina ..

http://wantarevelations.com/2014/01/wanta-plan-macro-financial-economic-...

But I guess they chose not to listen. So, the alternative is that they are all going to pay. And pay dearly ..

As reiterated above, the $4.5 trillion Settlement with Leo Wanta represented a compromise, which would have left the remaining original $23+ trillion, now worth about $58.5 trillion, uncollected – and would have let the co-conspiratorial banks in Europe and elsewhere that have long since assumed these resources to be uncollectable and usable as collateral for their own purposes, off the hook. But since The Wanta Plan has not been implemented, the entire original $27.5 trillion (now worth about $70+ trillion) is collectable; and since so much of this money has been stolen, Ambassador Leo Wanta will wind up owning a sizeable number of large financial institutions, if the funds are not disgorged as will be required. Alternatively, sizeable banks will go to the wall, and their supervisory central banks will be obliged to pay Wanta what these banks owe him, to authorise control to be passed to Leo Wanta, or else to nationalise the banks in question.

 

This is NOT bullshit! So start spreading the word ..

https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp

sheikurbootie's picture

How the fuck can we see the miniature cartoon?  I clicked on this just to the cartoon.  WTF! 

Youri Carma's picture

They can not save the world... but they can destroy it.

alfbell's picture

 

 

Just a bunch of blather (just like The Fed's talk about hiking rates). There will be QE4 (and probably 5 & 6) and there will continue to be zero bound rates and eventually negative rates. They have no choice in the matter. They must continue with it. If they stopped now we'd be hit by a deflationary tsunami and experience the Great Depression of the 1930s X 10... or 20. Onwards and upwards with QE and ZIRP/NIRP and other interventions and unusual solutions until it finally all crashes down on us. They can keep the ponzi going for many more years. This is what they are brilliant at. 

MASTER OF UNIVERSE's picture

I have been telling everyone that Paulson, Bernanke, and Geithner, thought too-BIG-to-fail would buy them time, but now Geithner's plan has become what it was from inception. When one starts out with a bad idea it takes even longer to get back-on-track to a good idea. Let's all face the truth here given that that is what has put us all in this collective bind. Truth is that QE Infinity needed helicopter drops of cash going to the masses because none of the QE Infinity went to anything but stock buybacks which fucked us all even more in Geithner's long run of events on a really bad fucking idea. Clearly, we all should have let Wall Street fold right into the gutter to fight over old slices of pizza with the rats on the New York shitty subway system IMHO.

 

It's not too late to take all the profits amassed by TBTF Banksters, traders, and anyone that profited from the money printing that never trickled down to the working serfs, or their families.

wholy1's picture

ABSOLUTELY ridiculous!  Central "banksters" [trying to] "save" what they destroyed! REALLY SICK!

luna_man's picture

 

 

Simple, CRIMINALS, have painted themselves into that, shall I say, tight corner and no way out!

 

what did they expect?...PROSECUTE!!

Shadow1275's picture

Has Central Banking ever saved the world? If a dam is breaking down and I patch the holes with flimsy paper does that mean I have saved the country like in 2008? If politicians deny that historically socialist policies never work and result in mass starvation and collapse do they still "care for the 99%"? 

 

But while Central Banks are the cause the true culprits are the people. They just never learn that people always act on self-interest and when you try to build this idea that your government is the people than everything comes crashing down. People aren't the government and vice versa. They are two separate entities.

TeraByte's picture

They masterminded the biggest rip off in history of economy and now are unable to beat their own record. Why not to hire Gideon Gono as consultant.

Rhal's picture

"The reason this is scary is the Fed doesn't tell us what's happening" M. Maloney: Reverse Purchase Agreements showed the Fed pushed $600B  onto some bank in trouble Sept 30: https://youtu.be/6Ksc2WJoXpg  @6:02.

When SHTF will we get any notice, or will the banks simply close ?

Hannibal's picture

They mean the BASTARD BANKSTERS a scared shitless losing their stolen fiat loot.

robnume's picture

"...can no longer save the world"? Never did, never will. Central banks are the antithesis of sound economic policies. They're also staffed, from top to bottom, with psychopaths in extremis. Send 'em ALL to Angola prison for life!

robnume's picture

I read Sartre. Sorry, banksters, there is "No Exit".

Gonzogal's picture

Welcome to the world of "Bail-in's"

breadonwaters's picture

 

Yah RIIIIIGHT.....You poor bankers have had your finger in the dike the whole time, waiting for gov to rush in and fix the problem! 

As the earlier commentor said it "Ten minute warning!"

LOCK AND LOAD.

Herdee's picture

The Central Bankers understand demographics and war.They know western governments are an even bigger threat than the average guy because they're already in debt up to their eyeballs and the cheques going out the door are snowballing downhill fast.