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"Stranded" Central Bankers Have Turned The Global Financial System Into A "Doomsday Machine"
Submitted by David Stockman via Contra Corner blog,
The financial system of the world has been turned into a doomsday machine by central bankers stranded in an intellectual puzzle palace. That is, they are marching financial markets straight into another giant bubble implosion owing to their embrace of a fundamental error about why there is an apparent lack of consumer inflation in the official indices.
For example, the chief economist of the IMF, Maurice Obstfeld, recently trotted out the chart below to prove that “lowflation” is a deadly threat everywhere on the planet to growth, jobs, living standards, public finances, and even capitalist viability.
The ill of lowflation can only be remedied, he averred, by resort to “out of the box” central bank expedients designed to compensate for the purported drastic shortfall of that Keynesian ether called “aggregate demand”.
What he had in mind, of course, was negative interest rates and further massive monetization of the public debt and other existing assets in the name of QE.
Mr. Obstfeld is talking central banker jabberwocky. The above graph is actually welcome evidence that wage workers and other middle class households are finally getting some respite from the relentless upward creep of consumer prices.
Moreover, the above graph represents no problem whatsoever because better retention of the purchasing power of wages and salaries is surely not something that needs fixing. And most especially not by the very same central bankers whose misguided policies gave rise to the deflationary tides now gathering in the world economy.
In a nearby post today, Pater Tenebrarum called out exactly what these “moar inflation” seeking central bankers are really up to:
What are the basic requirements for becoming the chief economist of the IMF? Judging from what we have seen so far, the person concerned has to be a died-in-the-wool statist and fully agree with the (neo-) Keynesian faith, i.e., he or she has to support more of the same hoary inflationism that has never worked in recorded history anywhere. In other words, to qualify for that fat 100% tax-free salary (ironically paid for by assorted tax serfs), one has to be in favor of central economic planning and support policies fully in line with today’s economically illiterate orthodoxy. Meet Maurice Obstfeld, who has just taken the mantle.
New IMF chief economist Maurice Obstfeld (left) and fellow monetary crank Haruhiko “Peter Pan” Kuroda, governor of the BoJ
So trapped in their illiterate orthodoxy, Obstfeld, Kuroda, Yellen, Draghi and the rest the central bankers cartel resort to desperate monetary expedients that would have been considered crackpot economics even 15 years ago. The idea of ZIRP for 82 months running would have been considered borderline lunacy; the notion that the collective central bank balance sheets of the world could explode by 10X in two decades would have been viewed as incendiary radicalism.
But it is exactly these crackpot doctrines which have now become embedded in a relentlessly tedious central banker groupthink. Indeed, the core notion of “lowflation” and deficient “aggregate demand” is so superficial, contradictory and refutable that it amounts to little more than jabberwocky.
The fact is, the massive growth of central bank balance sheets since 1994 is the driving force that fueled, shaped and deformed today’s global economy and financial system. The chart below is utterly new under the sun and thereby nullifies the relevance of pre-1995 history and contradicts all of its rules and patterns:
When the central banks created $19 trillion of new balance sheet out of thin air they fueled a worldwide credit bubble of epic proportions. After two decades of maniacal central bank money printing, the world’s credit outstanding has grown from $40 trillion to $225 trillion or nearly 4X more than the interim expansion of global GDP.
And even that latter figure is exaggerated because it includes massive amounts of malinvestment and economic waste that will eventually be written off and abandoned; it does not comprise a permanent component of the world’s productive economy.
This massive expansion of cheap debt, in turn, fueled a runaway capital investment boom that has left the global economy drowning in excess capacity and malinvestment. This occurred in the form of a central bank enabled doubly whammy over the last two decades.
First, excess DM world household demand lead to an investment boom in China and its EM supply base prior to the 2008 “peak debt” crisis; and then the post-crisis infrastructure and investment binge staged by the red suzerains of Beijing fueled a second wave of capital spending for energy, metals, processing plants, shipping, warehousing, manufacturing and consumer product distribution that dwarfed all prior history.
As shown below, the publicly listed companies of the world actually increased CapEx by 5X or upwards of $2 trillion annually during the run-up to peak capital spending in 2012-2013:
The official inflation indices, therefore, are tepid because prices of commodities and goods are being crushed by excess supply. That’s why oil prices have plunged into the $40s and why iron ore is heading into the $30s (per ton) and copper back toward one dollar (per pound).
Moreover, the excess capacity is by no means limited to the mining sector and oil patch. Its rippling downstream at a ferocious pace. This week, for instance, we posted a piece on Alcoa’s intention to shutdown most of its US aluminum smelter capacity and the likelihood that in a few years the entire US industry will disappear.
Needless to say, that’s not owing to a labor arbitrage because today’s high tech, capital intensive power-guzzling aluminum smelters are not about underpaid peasant girls living a dozen to a dorm room; they are about return on capital, which has been driven to nearly zero by the China’s insane rates of cheap credit fueled investment over the past two decades.
The same is true for steel and all its downstream customers. In 1995 China had 70 million tons of steel capacity and no modern auto plants. In the interim, its steel production capacity grew by 16X to 1.1 billion tons and auto industry capacity to 26 million units or well more than either North America or Europe. The excess supply from these malinvestments will be deflating world prices for years to come.
And the same is true of containerships, bulk carriers, refineries, chemical plants, solar power, heavy machinery and much more.
The collateral effect will be collapsing profits, asset write-offs and a long spell of weak capital spending. Indeed, the developing depression in commodities and capital spending is what is driving the global deflationary cycle, and the collapse of profits and incomes in the impacted sectors.
Stated differently, the credit fueled commodity and CapEx boom of 1995-2014 did not generate a miracle of global growth and prosperity as the Wall Street Keynesians would have you believe; it simply stole demand from the future and wasted massive amounts of real labor, capital and energy resources in the process.
Accordingly, the world does not suffer from a lack of “aggregate demand”. Sustainable demand everywhere and always is derived from production and income, and the latter are now falling due to the wasteful capacity excesses overhanging the global economy.
And there is no short-cut way out via credit based spending. That’s because the world is now saturated with “peak debt” in the household and business sector, as well as the official institutions of the state. More central bank enabled credit will only fuel speculation in financial assets.
By the same token, the “lowflation” story is just self-evident drivel. On a worldwide basis, the price of commodities are falling due to excess supply. Likewise, prices of goods are being flattened by cheaper raw materials and the excess supply of labor that was drafted into the world’s tradeable goods economy from the rice paddies of Asia during the credit and CapEx boom of the last two decades.
By contrast, domestic services prices have continued to inflate at a 2.4% annual rate since commodity and goods prices began to peak in 2011. In fact, the roll-over of the green line (all commodities) and the red line (finished goods) is the cause of “lowflation” in the aggregate consumer price index. Only the central banker PhDs lost in a self-serving groupthink of jabberwocky can’t see the implications of the graph below.
In a word, the graph says to the central bankers: You are out of business!
The developing deflationary cycle stunting the world economy has arisen from the monumental harm that central bankers have already done, not from lack of sufficient vigor and boldness in attempting to contravene its consequences.
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Yes, we know they're wrong. Tell us something new.
It's different this time.......It's a whole lot fucking worse.
Yep the fed and other central banks will not run out of ammo as is often stated. The gun will simply blow up in their face, and by this I mean the markets no longer allow them to create money (with purchasing power) thier willingness no longer matters. With the gun broken the pile of ammo no longer matters.
I am tired of living in a Neo-Keynesian petri dish...
Carly Simon: "These are the good old days."
"it's too late baby"
Negative interest rates is the method the govt willl use to support its WW#3 funding requirements.
Central bankers stealin from the people. No it can't be! /sarc
I agree they are itching to implement significant negative rates, the question is how they deal with the zero lower bound. New ideas to do this are popping up every day from "very serious" economists, but I think the E-Dollar concept is too perfect for their ends.
Would that make it a "savers war?"
It was never meant to save the system...only to save the banksters.
At least we have Paul Craig Roberts (also a former Reagan admin guy) coming out and saying that. Stockman has it right that central bank policies are horrible, but he insists on calling them mistakes and poor policy instead of intentional theft and a march towards neo-feudalism.
He can't say that to his intended audience. We already know and accept that neo-feudalism is the path, but PCR has to couch his comments in a way that doesn't make him sound like a tinfoil-hatted lunatic to the oblivious masses. Here he is preaching to the choir, whereas, out "there" he is walking a thin line to maintain credibility. Give credit where it's due and applaud him for saying anything at all. Don't brow-beat the spokesman for articulating the obvious in a way that won't discredit him in the eyes of those who need to hear the message the most.
Happy Birthday, Rock.
How anyone can believe that they want to save the world?
This is just a racket to loot their treasuries.
And use print money to buy up as many assets as possible.
In short, we are fucked. Destined to experience decades of a depression that will make the 30's look like a picnic. No way to avoid civil unrest and rioting, especially in the US with the entitlement mentality. Yes, war is probably unavoidable as the PTB shoot (no pun intended) to destroy productive capacity and population in order to reboot before they lose their power. Hopefully the central banks go away as well.
Yes and demographics and consumer indebtedness will prolong the problem. Last "great" depression had demographic and consumer pent-up demand and savings to turn the process around. That does not exist this go around.
Japan, China, Germany Russia and many other country has serious demographic issues. This is why they want to import more ponzis into their scam and are willing to take Muzzies to do it. (But not Japan or China). Powder, tinder, match...We will watch Europe burn - sadly.
"There's never been a better time now to be a Banker."
Up until the pitchforks show up.
''Everyone here should read up on King Charles the 1st, the Bank of England, the English Civil War, and tally sticks.
It provides some illumination as to some of the dynamics in play.
In short, Charles busted out the moneychangers by invalidating their tallies, so they financed a revolution which culminated in his execution and the foundation of the Bank of England, a private corporation for 250 years, for which original shares were purchased with...tally sticks.
It's interesting how, through the generations, the same sorts of scumbags have the same sorts of ideas and run the same sorts of cons over and over and over again. And things always seem to end up bloody.
The American Founders grew up in this BS and this is why we have a bimetallism standard in our Constitutions (Latin Metal Union) and had no central bank. But, despite this, these bankers' kids and grandkids and great-grandkids just kept coming. Rothschild was not alive in 1913 to see his company become a founding shareholder of the NY Fed, but for whatever reason, these crooks seem to just keep breeding and they never quit.
Sometimes the populists win, but not over time. For every throwout or purge of the banking clan/class, they just seem to keep coming back. Victories against them do not seem to last. I mean, how long was it between Andy Jackson and the Fed Act? 60 years? Meanwhile, the BOE was private for 250...how many generations is that?''
http://www.zerohedge.com/article/kansas-city-feds-hoenig-fed-must-hike-f...
The money changers printed up bibles in Amersterdam and funded Calvanism. Calvanism is old time testament, and the propaganda was to make Jewry seem as if it was special. Usury in Calvnism was given sanction; while in Catholicism of that day, usury was a mortal sin.
The other tactic made by Amersterdams Jews was to get English Crown in debt to them. So, stock market Capital out of Amsterdamn was used to float loans to British Crown.
With regards to talley sticks funding bank of England, that is mostly true. What is not known is that the gold hoarders of england were shut out, while the gold men of Amersterdam were supposed to pay in Gold for founding stock. But, they lied and didn't pay.
Talley sticks were similar to Treasury money in that they were issued by the Crown, and then taken up in taxes. The term "stick" morphs into "stock" to form a corporation of shareholders, but the shareholders are those who are maneuvering for control of the money power.
Once BOE is formed, the first thing they do is start emitting debt instruments, to then create credit, to then put the population on a debt hook.
Prior to that, Talley Sticks were a form of money that had no debt instrument. They were simply circulating money.
The money changers ARE JEWRY. The Talley sticks would have lasted wihout purposeful intervention from abroad.
Suspicious books were circulated at the time of the Constititution, put into circulation by our friends, to thus confuse the minds.
At key points in American history, Congress critters woud be bribed to then allow BOE to make in-roads into the U.S.
The revolutionary war was mostly about making the Colonies use BOE banknotes, while having to pay for trade imbalance in gold/silver.
The FED and the election of 1912 was a banker gambit.
WW1 and WW2 were mostly about the money powers trying to grab the world into their hands. Behind all of this, we find Cabala, and World International Jewry.
I'm sorry to pop your bubble, but the idea that it is populism vs crooks is not a good analogy. Trav777 makes some good points but the whole story is much deeper and more sinister.
Talley sticks were a good money system that allowed England to prosper, that they were grabbed and abused by criminals to help create BOE is a different matter.
This overcapacity driven by central banker debt and bubble creation has also driven our world population to 7.5B
The globalists at the UN keep making predictions of 9B or 25B people in the future but we're already in a massive people bubble that mirrors the over capacity David talks about.
"Doomsday Machine" Ah, yes. Absolutely.
But for whom does the bell toll?
Not for the poor Afgan goat herder, the Chinese rice paddy owner, and not for me.
Get the hell out of a city and stock up. Plant the garden, get rabbits and chickens, - tell the system to fuck off.
I fear we are ruled by those who would rather see global conflagration before their loss of control.
Every time a banker jumps, the world wins!
It is not the bankers that are jumping - check the latest suicide rates - if I remember it is mostly white males that have lost all hope, are stoned to hell, drunk to death or have just lost all hope.
White males aren't jumping, they're being pushed by blacks and muscums......who are immune from prosecution.
Gold....Silver....
that is all.
I'm sorry to say that survival will be of a more basic nature than gold and silver.
dont be sorry...
and dont be presumptuous either...
That shinny piece of metal may impress some people but it will not get my chicken or vegetables. I only presume that hunger may be all powerful in the future.
dude i own 5 acres of farm land in the central valley of california...
with all due respect... u aint the only one with Chickens and livestock...
humility....
You got water????.....Or is it all being used to water governor moonbeam's yard?
How many inches of annual rainfall do you get in the Central Valley?
Well that explains alot - as misguided about preps as the location of property. As the wave of socal migrants cross your land you can wave them off with shinny metel once the animals and crops are gone. If you have any crops in that wasteland.
Easy to confiscate, easy to steal. My relatives told me the stories. I'm not saying don't hold some. But if we end up in doomsday all you will be able to really rely on are your wits and your skills and the good faith of your community.
LOL lead and copper bitchez . Maybe you can throw gold and eggs at us. i might go away......
Wait - you need all the perious metals Gold, silver, lead and blued steel.
LOL lead and copper bitchez . Maybe you can throw gold and eggs at us. i might go away......
there are no financial markets. there is only the central bank artificial construct.
i've been on this doomsday machine since 2009 since i discovered what's REALLY going; we're living inside of a giant insolvent bank. it's all just paper money. i've lost friendships & family members consider me 'crack-pot' Mom. no amount of sending links about the financial system has gotten thru to these people. i'm on the doomsday machine while my family members are liviing it up & having a great life on credit.
She who laughs last .....- sorry, in bad taste.
"hi...my name is Kaiser...i save only in Gold and Silver and i have been mocked as well...."
I hope your gold and silver taste good when you need it.
You know what's really a hoot owl? It's possible to have food AND PM's at the same time !! Can it be or would it be a miracle?!! You ever hear about the guy that could walk and chew gum at the same time?!! No? I know---It's crazy right?? God you sure is smart !!
Central/fractional-reserve banking and its attendant, myriad obfuscatory schemes and scams have been a "doomsday machine" from the moment of its conception by Lucifer/Satan many thousands of years ago in Babylon/Khazaria/The Seat of Satan. Humankind has always been susceptible to the illusions of "something for nothng" that the dark side tantalizingly dangles before us.
Those that have inflicted this evil upon us knew its destructive power from the begining. It was the destruction and impoverishment, and disintegration and degradation of human society that was the purpose of the system from the beginning, not just the aggregation of limitless, vacuous "wealth" by a few Luciferian families, but the power by a very small portion of humanity to destroy nations.....and, of course, humans,..........worldwide.
With the advent of this age and its ubiquitous electronic interrogativatory reach a few of us can perceive that we are in/at the "end game".......but are now with very little power to do anything about it.
You know what else is a hoot owl? You used the words obfuscatory and Lucifer in the same comment. How far is Lucifers interrogativatory reach? Is he good at obfuscating it? Hope so.
I'm fortunate to have a family history going way back, with a belief in real money (PMs) and real hard assets.
lynnybee: Do you realize that we have the exact same ZH time? 6 years 14 weeks.
Gotta be some karmic thingy going on there. Glad to see you still fighting the good fight.
thank you. i can't believe i've been reading for 6 years. it's not gonna end well for most. paper money is fake. the gold & silver are the real money & "they" stole my grandma Jo's gold coins in 1933. those gold coins were my rightful inheritance.
Yeah, well, I think this time around they'll have to go door to door to get any of the metal from today's crowd. Only those who know its real value have any and they ain't letting go that easy. Back then it was real money and thought of as such. Today it's a "barbarous relic" and who needs something that you can't eat!? Can't wait for the masses to try to make a decent salad by shredding fiat currency. A dollop of ranch dressing won't help much.
Central Banks have tried to reflate the system the bankers crashed in 2008 with their derivatives.
Letting bankers get creative was a recipe for disaster and the only good thing that came out of the financial sector in the last 50 years was the ATM machine (as Paul Volker noted).
Before complex derivatives, house price crashes just crushed the economy of the nation involved.
Japan had the mother of all real estate crashes in 1989, it only affected Japan.
James Rickards in Currency Wars gives some figures for the loss magnification of complex financial instruments/derivatives in 2008.
Losses from sub-prime - less than $300 billion
With derivative amplification - over $6 trillion
Fuck the above antisemite bullshit
Sometimes the most efficient way forward is to cut the Gordian knot of complexity, shatter what Stockman is calling the 'intellectual puzzle palace', and recover from first principles why western civilization relies upon credit in the first place, then go about recoding monetary legal constructs from the ground up from those principles as opposed to continuously tinkering around the edges of a broken system weighing it down with more and more rube goldberg mechanisms and the accompanying entropy with each iteration.
Federal Home Loan Bank Act 1932
Banking Act of 1933 (Glass-Steagall)
Farm Credit Act of 1933
National Housing Act of 1934
Bank Holding Company Act of 1956
Higher Education Act of 1965
Housing and Urban Development Act of 1968
Emergency Home Finance Act of 1970
Depository Institutions Deregulation and Monetary Control Act of 1980
Garn–St Germain Depository Institutions Act of 1982
Agricultural Credit Act of 1987
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley)
Creating Credit Rating Agency Reform Act of 2006
Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010
ad nauseum! the system doesn't function in a stable state, and never will.
Funny coincidence: !994 was the year I shut down my business and retired, age 41. The wheels of history grind rather slowly. Radical change does not appear imminent. Adapt...
DEFLATION STARTED! http://forum.prisonplanet.com/index.php?topic=80429.msg1577364#msg1577364
Keep fighting the good fight, Stockman.
Keynesian Central Bankers will hopefully soon be facing their 'Nuremburg trials' for the financial holocaust they are carrying out.