Something Changed In 2014

Tyler Durden's picture

For all the talk about the various "tools" in central bankers' arsenals to influence monetary policy, to manipulate stock markets and to soak up global bonds (they now hold more than a third of the total $54 trillion in in global bonds), the fundamental - and very simple - purpose of any "developed" central bank is one: to restore and boost consumer (and in recent years investor) confidence during times of stress, promoting a vibrant economy in which the velocity of money is high, where commerce and economic transactions are ample, and where inflation (at least in a Keynesian world) is sufficiently high to gradually inflate away the debt burden and reduce the incentive to save. Boost confidence, the thinking goes, and everything else will follow from there.

And while that may historically have been the case, something changed significantly in 2014.

This is obvious from one chart in the latest OECD Economic Outlook report issued earlier today, which shows that while consumer and the all important business confidence do indeed go hand in hand...

... when it comes to the correlation between consumer confidence and global retail sales growth, arguably the core driver behind a global economy that is predicated upon spending (in the US this is roughly 70% of GDP) the correlation broke spectacularly in 2014 as shown in the chart below for reasons that are not quite clear.

What may have caused this dramatic divergence is not clear. This is what the OECD says on the topic:

In a number of countries, confidence measures have rebounded to a much greater extent than "hard" indicators of activity, raising issues about the reliability of the signals provided by these measures for future activity. While global business confidence appears to remain a useful signal of likely developments in global industrial production, the association between consumer confidence and global retail spending has fallen sharply in recent years, suggesting that limited weight should be given to fluctuations in this measure in the absence of supporting developments in "hard" indicators of spending and income. This disconnect has also been apparent in the early part of 2017, especially in the advanced economies, with consumption growth moderating despite rising confidence, in part due to the drag on purchasing power from higher headline inflation.

In other words, the OECD is clueless. And while one potential answer may emerge from the following chart of global policy uncertainty which started rising roughly the same time the correlation between retail sales and confidence collapsed...

... it is hardly the full answer.

Which begs the question: even though central bankers may still influence consumer confidence and overall sentiment, if the link between sentiment and spending - the beating heart of any developed economy - is now broken, just what role do central banks play in this post-divergence world, and is there even a need for them?

Source: OECD

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RagaMuffin's picture

"now hold more than a third of the total $54 trillion in in global bonds)" paid for with electrons to the E-Trade baby?

Croesus's picture

Filling in one hole, with dirt from digging another...

Shuffling deck chairs on the Titanic, indeed.

101 years and counting's picture

Being confident the current depression will end someday does not mean I'm going to spend my money on worthless shit like Echo.

DisorderlyConduct's picture

We never needed central banks. Any positive effects have been illusory.

Doubleguns's picture

Guess we dont need the FED any more. Kill it. 

Soul Glow's picture

Herd mentality.  The Fed is well aware of the moral hazards they have created.  Easy lending and easy money with low rates will create an irrational exhuberence in the stock and bond market because when it is easy to get and make a loan they will be handed out like free donuts.  The herd mentality appears when if everyone is doing it and making money then I should too.  Of course when the herd starts running off the cliff the people in the middle can't stop running or else get stampeded and the people in the back have no idea there is a cliff until it is too late.  

The FOMO - fear of missing out - runs deep in the spirit of people.  Thus why most people buy high and sell low.  The Fed front ran all these people starting in 2009.  Now they can pull the plug on the system and leave the average Joe holding the bag once again.

RagaMuffin's picture

Agree with you on the herd mentality bit, the "moral hazard" bit may be a bit generous....

Seasmoke's picture

i honestly think they know they cant get away with it this time, atleast not with thier heads still attached to their bodies.....

Debt-Is-Not-Money's picture

"Now they can pull the plug on the system and leave the average Joe holding the bag once again."

Yes, and years ending in a '7' seem prone to this treatment.

Alfred's picture

Indeed... FOMO runs very deep, but only for the things this life brings...

His name was Seth Rich

Imagery's picture

YES......there is still an intimate need for CBers and if you were not such a TOOL you would espouse the need.

Simply put:  The minute the CBers of teh World stop supporting their FRUADULENT TBTF WS IPOd Public Corps is THE MINUTE they literally DIE.  And if the USG is anything, it is supportive of the Criminal Cabal Known as TBTF WS and FedRes.

Imagery.

 

bjax's picture

I presume the red one is the heart beat. Surprised it's not flat lining!

Seasmoke's picture

February 2014 is when the lies went to a whole other level.....

DontFollowMyAdviceImaDummy's picture

spending dropped?  and yee cannot noodle through what happened in 2014 that caused this?  lemme help yee out: a "constitutionally required tax" happened and that forced everyone to take-on shitty medical insurance with $15,000+ deductables before any coverage actually begins.  

 

the only thing The Fed with their ctrl-p should be doing is printing money-outta-nothing to pay all entitements and then never be allowed to demand repayment of it. or better yet, just kill The Fed entirely

MalteseFalcon's picture

LOL.  Let's just say it outright.

Obamacare was a massive tax increase.

It has taken a while for some people to figure out that they have been massively taxed and for consumer confidence to reflect this fact.

Can't completely blame them.

It was a sophisticated game of three card Monte.

Your costs (premiums) are the same, until you actually need to access the medical system.

Then the deductible kills you.

Now they are "awoke".

PeeramidIdeologies's picture

Double seasonal adjustments have created a fantastical new economic perspective while the fundamental function of the economy is moving in the opposite direction. The populace is learning.

gold rubeberg's picture

The problem is the core paradigm set forth in the first paragraph. Confidence and retail spending do not produce wealth and prosperity. They reflect temporary stimulus. It never was sustainable, and if something's not sustainable it will end.

Latitude25's picture

Easy.  MSM lies and propaganda and/or consumer sentiment is an outright fabrication.

adr's picture

2014 was when all the global central banks went all in and later Bullard Saved the World.

2014 was when stocks went full retard and Amazon, Priceline, Domino's Pizza and others went parabolic.

Domino's Pizza is like Bitcoin. It keeps going up and nobody really knows why.

scoutshonor's picture

It's not cuz of their pizza.

RightLineBacker's picture

Maybe it wasn't Comet Ping Pong Pizza after all.

RightLineBacker's picture

In answer to the articles closing question; No.