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Central Bankers Are Not Omnipotent

Tyler Durden's picture




 

A generation of market participants has grown up knowing only the era of central bankers and the 'Great Moderation' of (most of) the last two decades elevated the status of central bankers significantly and while central bankers are generally very well aware of the limits of their own power, financial markets seem inclined to overstress the direct scope of monetary policy in the real world. Monetary policy impacts the real economy because it is transmitted to the real economy through the money transmission mechanism. This has become particularly important in the current environment, where, as UBS' Paul Donovan notes, some aspects of that transmission mechanism have become damaged in some economies. Simplifying the monetary transmission mechanism into four very broad categories: the cost of capital; the willingness to lend; the willingness to save; and the foreign exchange rate; UBS finds strains in each that negate some or all of a central bank's stimulus efforts. In the current climate, it may well be that the state of the monetary transmission mechanism is even more important than monetary policy decisions themselves. Some monetary policy makers may be at the limits of their influence.

 

UBS Investment Research, Global Economic Comment:  Memento Mori (Remember You Are Mortal)

Victorious Roman generals accorded the honour of a triumph through the city were treated as demigods for the celebration. To remind them of the limits of their powers, a slave was required to ride alongside the general, whispering from time to time some ego deflating phrase. Apocryphally this was “memento mori” – “remember you are mortal”. A similar process could well be applied today to the world’s central bankers. To be fair, central bankers are generally aware of the limits of their own powers. The problem is that financial markets have embraced the cult of the central bank, and it is central bank watchers who need to be told “remember they are mortal.”

The great moderation of the last two decades elevated the position of central banks. By the 1990s central banks in the OECD had generally reduced inflation, and in doing so reduced the inflation uncertainty risk premium. This had lowered not only the nominal but also the real cost of capital (quite justifiably). This in turn facilitated investment, capital gains in asset classes, and fortuitously accompanied an extended period of economic stability for most economies.

This period raised the status of central banks. Fiscal policy ceased to concern markets too much, with the possible exception of Japan (where monetary policy was demonstrably failing). Changes of government were not generally a macroeconomic concern, although specific sectors could still be impacted by specific policies. Stimulus was to come through monetary policy, and moderation would be enforced by the same means. Perhaps inevitably, at a time when a lower real cost of capital was driving economic prosperity, the arbiters of the cost of capital were seen as the drivers of economies.

A generation of investors and financial market participants has thus grown up knowing only the era of central bankers. The modern communication age further encouraged this. With twenty four hour business news, having a whole host of central bank speeches to cover must be something of a godsend. Federal Reserve Presidents (voting or not), ECB board members and participants in the Bank of England monetary policy committee all provide a wonderful way of generating newswire headlines and filling airtime.

Time to ask “why?”

With the dominance of monetary policy seemingly established in the OECD, why should investors commit the economic blasphemy of viewing central bankers as merely mortal? Central bankers need to be considered mortal because monetary policy has its limits. Those limits are now being reached, or at the very least approached, in some economies. We need to remind ourselves that the potency of monetary policy in the real world depends on the effectiveness of the monetary transmission mechanism as well as the level of policy accommodation.

Investors need to remember to ask “why?” when questioning the need for monetary policy. With an almost Pavlovian response function investors tend to see an economic problem and expect a monetary policy reaction. If markets fall, investors need only to run to central bankers and Ben Bernanke and his ilk will put on a sticking plaster and offer a liquidity lollipop to the investment community for being such brave little soldiers in the face of adversity. However, as Japan showed, there are limits to the effectiveness of monetary policy.

The concept of monetary policy “pushing on a piece of string” has become an almost hackneyed idea, but it is something that has to be remembered nonetheless. For monetary policy to have a direct impact on the real economy, the accommodation needs to be transmitted to the real economy through some medium. That can be via borrowing costs, incentives to lend, disincentives to save or the exchange rate. But in each instance monetary policy requires some catalyst to produce a real economic reaction. It is reasonable to ask whether those catalysts are present today. In short, the question in analysing the impact of monetary policy across the OECD is not primarily where central banks put interest rates or liquidity; it is increasingly how the monetary transmission mechanism is situated.

1. Borrowing costs

The transmission from monetary policy to real world borrowing costs is automatic in a select number of instances. A UK base rate tracker mortgage, for instance, is directly connected to the monetary policy interest rate of the United Kingdom. In such instances borrowing costs fall mechanically if monetary policy is eased. Those who have already borrowed money will receive an improvement in cash flow. This is effectively a transfer of disposable income from savers to existing borrowers. Generally speaking savers spend less and borrowers spend more (why else would they be borrowers?), so lowering interest rates costs in a direct sense can stimulate economic growth through this income transfer.

For new borrowers the transmission via borrowing costs is not so clear. There is no necessity for a rate cut to be passed on to a marginal borrower. Before considering the role of banks in this regard it is worth acknowledging the importance of the non banking sector. Large companies, generally speaking, are able to borrow from financial markets. If a monetary policy easing lowers corporate bond yields, then large companies may benefit from that market response. The benefit can be transmitted to smaller companies. Inter-company credit is the single most important form of credit for small businesses. If large companies experience lower borrowing costs, they may transmit some or all of this reduction in a more accommodative provision of inter-company credit to smaller businesses.

This process is contingent on investors being willing to drive corporate yields lower, and on large companies having a sufficiently low liquidity preference as to be willing to transmit that borrowing cost benefit to their smaller business customers. One of the peculiar problems of this downturn compared to previous downturns is that this willingness to transmit credit to smaller businesses has been lacking – and central bank policy easing has done little to change the provision of intercompany credit.

The classic theoretical transmission of monetary policy is via banks lowering borrowing costs for new borrowers. That transmission assumes a static risk environment for banks. If banks are risk adverse they may increase the premium they charge on lending to the real economy, negating the impact of the policy rate cut. Indeed, in extremis the marginal interest rate for new lending could be infinite. If banks do not wish to lend, then new credit cannot be obtained at any price, at least as far as a prospective borrower is concerned. The change in the policy interest rate is then entirely ineffectual.

2. Incentives to lend

This brings us to the incentive a bank has to lend in the wake of monetary policy accommodation. There is an obvious arbitrage to be exploited if the cost of funding to a bank (the policy interest rate) is lower than the rate that is charged to the customer of the bank. However, this remains contingent on the willingness to lend. If banks are under pressure to reduce the size of their balance sheets (as Euro area banks are today), then the disincentive to lend may outweigh the inducement offered by arbitrage arising from the lowering of a policy interest rate.

There is also a somewhat more subtle potential stimulus from lowering policy interest rates. A combination of lower policy interest rates with unchanged (or largely unchanged) bank interest rates means an increased profit margin for banks. The immediate transmission of central bank accommodation in such circumstances is nil as there is no increase in lending into the wider economy. However, the profits that the banking sector make by exploiting a widening interest rate differential (commercial bank rate less policy rate) could lead to a more rapid repair of balance sheets, and therefore hasten the normalisation of the banking system.

Helping banks achieve better profits does seem to be a compelling argument for accommodation, but there is a risk. Just such arguments were presented when Japanese banks tried to repair their balance sheets in the 1990s. Supported asset prices (e,g, Japanese government bonds propped up by the Bank of Japan’s rinban operations) and very low costs of liquidity were supposed to generate profits from the yield curve, repairing balance sheets, leading to a stronger transmission mechanism through more bank lending. It never happened of course.

The market’s scepticism about banks outweighed the benefit of earnings, and the fall in asset prices outside of the government’s operations (real estate, most obviously) ended up doing damage to balance sheets faster than bank profitability could repair them. This is not to say that the monetary policy method can never work through this transmission mechanism. It is merely to point out that in a liquidity trap the monetary policy method of improving bank balance sheets needs to be treated with a healthy dose of scepticism.

3. Disincentive to save

Lowering the return on liquid savings through monetary policy accommodation is supposed to be a disincentive to save. If the objective of saving is to earn a rate of return on one’s money, then this is of course entirely logical. Lowering the rate of return on liquid savings gives an incentive either to spend, or to move into higher risk assets (causing those asset prices to increase, and creating a positive wealth effect).

However, if there is extreme liquidity preference in a financial system the impact of changing interest rates is minimised. Investors basically ascribe a value to liquidity which overwhelms the absence of any return earned on it. The extreme of this is of course the negative T-bill rates evidenced in US during the more stressed episodes of the recent global financial crisis, or indeed in Switzerland recently. Liquidity (and associated safe haven status) is so prized that investors area actually prepared to pay for the privilege.

4. Foreign exchange rates

Superficially, monetary policy and exchange rates are intimately intertwined. New Zealand makes a formal virtue of this through considering the combination of trade weighted exchange rates and interest rates in a monetary conditions index. How is monetary policy supposed to influence an exchange rate?

There are two critical transmission mechanisms from domestic interest rates to foreign exchange. The first is the relative rate of return, or the relative borrowing cost of a currency. If the interest rate in a domestic economy goes down then there is less incentive to invest in the fixed income assets of a country. There may also be the fabled and at times mythical “carry trade”. Investors will borrow in one currency (where it is cheap), sell that currency and purchase higher yielding assets in a second currency.

The second possible transmission mechanism is simply relative money supply. If monetary policy expands the domestic broad money supply, then there is in theory more money available for the foreign exchange markets. Increase the supply of something, and you should reduce its price.

Both of these transmission processes run into problems via liquidity preference. If liquidity preference is high then the international demand to hold cash balances in a currency is unlikely to be related to the return earned on those balances (it is the old adage of “return of capital not return on capital” that directs investor strategy – as Switzerland demonstrates). If there is liquidity preference in the economy then borrowing for carry purposes becomes more difficult. Finally, the supply of domestic liquidity to the foreign exchange market is not contingent on the expansion of the domestic money supply alone. If there is an increase in domestic money supply relative to domestic money demand (or liquidity preference) then there will be a weakening of the currency. If domestic money supply increases are simply absorbed by the sponge of liquidity preference then the supply of currency to financial markets will not change, and can have no impact on the currency value.

Watch the transmission

We are not arguing that monetary policy is redundant in the OECD. That clearly is not the case. What we are arguing is that the money transmission mechanism is now at least as important, and perhaps more important, than central bank policy decisions in assessing the impact of monetary policy on the real economy. The Bank of England is demonstrating this with its policy actions – the Mansion House speech showed a central bank paying as much attention to the monetary transmission mechanism as to direct forms of liquidity intervention. We believe that further quantitative policy from the Bank will be rendered economically useful through the medium of better transmission via the banking system (the liquidity preference of which is actively being reduced by policy changes). The efficacy of the transmission mechanism in the United States is evident from the bank lending numbers themselves, as well as surveys like the NACM (of borrowers) and the Fed’s Senior Loan Officers’ Opinion Survey (of lenders). Our US team’s forecasts reflect a belief in the effectiveness of monetary transmission such that the Fed may well moderate the degree of monetary stimulus next year.

Where monetary policy transmission is moot is the Euro area. The need to improve bank capital adequacy coupled with the risk aversion of an economy beset by structural problems has reduced the ability of monetary stimulus to transmit to the real economy. Central bank policy for the Euro area seems to be directed at minimising basic liquidity concerns (the failure of the interbank market to function effectively). Bank, corporate and saver liquidity preference seems likely to remain high. The ECB must hope that the banking system (or, if necessary, the corporate sector outside of a disintermediated banking system) can be made a more effective transmission mechanism than it is at the moment. Our concerns about the speed with which this can be accomplished are one of the reasons we think the Euro area will persist in a sub trend environment for so long a period.

 

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Sat, 07/07/2012 - 21:51 | 2595732 Doña K
Doña K's picture

The word "Central" itself is scary adding "Banker" to it is deadly.

Chaos theory seems to be associated with whatever they do. Hence, uncotrollable.

Sat, 07/07/2012 - 22:19 | 2595780 MachoMan
MachoMan's picture

I'm not sure it's chaos theory so much as hubris...  central planning has NEVER worked...  ever..  ever...  Whether some assfucker named ben or alan or nostradamus...  whoever the shit it is does not know how to fix the issue...  and, worst of all, they'll do the same shit their predecessors did in the same position and pretend something is different this time around...  "no, like we're calling it something different this time around so, like, it's cool n' stuff...  it'll be aight"

The other thing is...  OTHER SCHOOLS/PEOPLE HAVE PREDICTED WHAT WILL HAPPEN AND HOW IT WILL HAPPEN...  this isn't chaos...  this is political subterfuge...  this is machiavelian aptitude being substituted for science and manifesting itself as misallocation of resources...  it's not chaos...  it's inevitable...  it's power.

Sat, 07/07/2012 - 23:06 | 2595830 flacon
flacon's picture

Global Planners have taken a look at THIS chart AND THEY KNOW IT'S A BUBBLE about to burst:

http://plus.maths.org/issue17/news/popn/oldpop.gif

http://www.extension.umn.edu/distribution/livestocksystems/images/7220f03.gif

 

 

 

Sun, 07/08/2012 - 01:58 | 2595919 Manthong
Manthong's picture

Peak people?

Sun, 07/08/2012 - 03:12 | 2595953 gojam
gojam's picture

Peak people is an interesting concept but I fear we're a long way from it.

Funny article here about the dicovery of the 'God' gene - http://theneedleblog.wordpress.com/2012/07/04/scientist-announce-discovery-of-the-god-gene/

Sun, 07/08/2012 - 05:14 | 2595988 Element
Element's picture

Well, how's Japan doing?

--

Japan fighting deflation with an aggressive QE policy

Sunday, July 8, 2012

http://soberlook.com/2012/07/japan-fighting-deflation-with.html

--

hmmm ... barely holding it together

Sun, 07/08/2012 - 05:52 | 2595996 The Alarmist
The Alarmist's picture

The only reason central planning has not worked is that it has only been done in a higgildy-piggildy patchwork around the globe. If we only have the sense to finally do it on a truly global basis, then it would truly shine and we would all be so much better off under the reign of one truly sperior group of lords and masters. This is why the UN, IMF, G20, etc. need our support now more than ever.

oh yeah ... /sarc

Sun, 07/08/2012 - 10:02 | 2596121 NotApplicable
NotApplicable's picture

Central banks are too omnipotent! There's nothing that they cannot destroy. As for a market perspective, well, central banks are not part of any natural market.

Sun, 07/08/2012 - 11:09 | 2596202 AnAnonymous
AnAnonymous's picture

The only reason central planning has not worked

_____________________

Central planning has not worked? Central planning has built 'America'

Pyramids are an exhibition of central planning. But hey, at least, pyramid builders knew that they did not build pyramids for themselves...

Sun, 07/08/2012 - 11:14 | 2596211 palmereldritch
palmereldritch's picture

You do know that the Pyramids are not in America?

Sun, 07/08/2012 - 11:18 | 2596219 AnAnonymous
AnAnonymous's picture

There are pyramids in America. Probably not in 'America'

Another example of the confusion wished for by US citizens when they chose to use the name of a continent to refer to a country.

'America' has been built by central planning.

Sun, 07/08/2012 - 11:24 | 2596228 palmereldritch
palmereldritch's picture

'America' was built by individulaism and is being subjugated by central planning since 1913 and incrementally ever since.

 This is a central planning that has its roots in the Bankster's City of London and the BIS and who created communism and the Opium Wars before that that subjugated the people of China.

I think you constantly criticize the wrong party as a perpetrator when in fact you should attack the real criminals...unless of course this is all a distraction.

Sun, 07/08/2012 - 11:32 | 2596247 AnAnonymous
AnAnonymous's picture

'Americans' have been such individualists they have been thriving like good on racism and they were so free of central planning before 1913 they used the power of a state apparatus funded through general taxation to crush neighbouring stateless societies.

And yes, the big tale of the city of London...

I have to remember this one along with the elite, the illuminati, the vatican etc

'Americanism' is at work. Nothing else. And 'Americanism' is such of an exhibition of individualism and absence of central planning, heart attack.

Sun, 07/08/2012 - 11:44 | 2596265 palmereldritch
palmereldritch's picture

You sound like a 'State's Rights' advocate.  You should take that with an advocacy of the Second Amendment to China on behalf of you Bankster patrons.

"Change must come from a barrel of a gun" -Mao Zedong

(P.S.You just negated whatever feeble credibility you had by being a constant visitor to this website and not admitting the abundance of evidence of the financial malignant effect The City has had on the world through history. Nice to know who you work for now old chap. After all, who hates America and their contagious potential for economic and personal freedom more than globalist agents?)

Sun, 07/08/2012 - 11:49 | 2596274 AnAnonymous
AnAnonymous's picture

'Americanism' includes globalization. When US citizens hijacked humanity on 1776,July,4th, they turned it in a global project.

'Americans' are the globalist agents.

Advocating what?

Anyone who advocates for 'Americanism' advocates for central planning.

Once again, the ball is on your side. Keep it. It is an 'American' ball.

Sun, 07/08/2012 - 11:53 | 2596281 palmereldritch
palmereldritch's picture

For the record you went out of character when you brought up the Vatican and the Illuminati.

Sun, 07/08/2012 - 12:06 | 2596312 Spirit Of Truth
Spirit Of Truth's picture

AnAnonymous levels the allegation of "central planning" at the one nation in need of more centralization if anything.  Meanwhile, the true "central planning" nations are successfully vying for the destruction of America and subjugation of Europe:

http://thespiritoftruth.blogspot.com/2009/05/russias-secret-war-plans.html

Ignoramus AA is...

Sun, 07/08/2012 - 12:28 | 2596356 palmereldritch
palmereldritch's picture

And if it was a 100 years ago Putin would be portrayed as the Czar...and look what happened to him at the hands of the usual suspects.

Sorry, that Russia baddie line doesn't work because even the shadow of Communism (via Marx, Lenin and Trotsky who were all minions of the global Bankster cabal stationed in London and who were purposed with establishing order from their chaos as they systematically robbed the Middle Class and snuffed out free enterprise in true gangster fashion) is a remnant of a globalist construct.

Communist Russia bad. Now, just Russia, bad. Not flying.  Putin is a fly in the ointment to the usual suspects IMO.

As for AA, his didvide and conquer tactics enflame free thinking liberty lovers and entrap them into hating the Chinese he so poorly impersonates.  Again, more hate mongering and chaos and hence control.  Hate is a control mechanism after all.

Perhaps AA would be better suited with the handle Bankster Bob, his posts, it appears, are becoming that comically transparent...

http://www.youtube.com/watch?v=s27Oq5ot0ZI

 

Sun, 07/08/2012 - 18:53 | 2597083 BigJim
BigJim's picture

You think he should just stick with the US Citizenism Citizens, whose nature is eternal 'meme'?

Sun, 07/08/2012 - 23:13 | 2597716 palmereldritch
palmereldritch's picture

LOL

So true...these hacks should know by now that they have to stay with the script.

If he keeps it up they'll delete him and his Persona will have to re-spawn. More's the pity ;)

Sun, 07/08/2012 - 11:35 | 2596251 TPTB_r_TBTF
TPTB_r_TBTF's picture

You do know that the Mayan Pyramids are indeed in America?

Other Native American earthworks imply a [certain level of] central-planning system as well.  We didnT learn much about these in school because TChristianPTB want us to believe that these natives were uncivilized, heathen low-lifes. 

The Native Americans had Great Societies (with a certain level of central planning) which were destroyed by the European Citizens: their dieseases, rats, cockroaches, vices and greed.

 

Sun, 07/08/2012 - 13:45 | 2596465 TPTB_r_TBTF
TPTB_r_TBTF's picture

you are confusing Aztec with Mayan.

Sun, 07/08/2012 - 14:29 | 2596512 palmereldritch
palmereldritch's picture

Wrong again Hans.

Would you like to go for Double Jeopardy where the scores can really change?

http://en.wikipedia.org/wiki/Sacrifice_in_Maya_culture

The city of Chichen Itza, the main focus of Maya regional power from the Late Classical period, appears to have also been a major focus of human sacrifice. There are two natural sink holes, or cenotes, at the site of the city, which would have provided a plentiful supply of potable water. The largest of these, Cenote Sagrado (also known as the Well of Sacrifice), was where many victims were cast as an offering to the rain god Chaac. A 2007 study of remains taken from this cenote found that they had wounds consistent with human sacrifice.[14]

Mayanists believe that, like the Aztecs, the Maya performed child sacrifice in specific circumstances, most commonly as foundation dedications for temples and other structures. Maya art from the Classic period also depicts the extraction of children's hearts during the ascension to the throne of the new kings, or at the beginnings of the Maya calendar.[16] In one of these cases, Stele 11 in Piedras Negras, Guatemala, a sacrificed boy can be seen. Other scenes of sacrificed boys are visible on painted jars.

Sun, 07/08/2012 - 18:54 | 2597087 BigJim
BigJim's picture

I'm sure they meant well.

Sun, 07/08/2012 - 06:10 | 2596003 TPTB_r_TBTF
TPTB_r_TBTF's picture

.

"peak people" is the Plan (their Plan).

A synonym for The Culling.

A synonym for Depopulation.

.

iow, 7 billion sheeple are too many!  a few 100 million or 1 billion are "enough".  Cull the herd!

Join:

http://www.facebook.com/pages/I-Support-Human-Culling-Depopulation/16720...

 

Sun, 07/08/2012 - 07:58 | 2596041 CloseToTheEdge
CloseToTheEdge's picture

“It is no coincidence that the century of total war coincided with the century of central banking.” R.Paul, End the Fed

Sun, 07/08/2012 - 09:56 | 2596115 ITrustMyGut
ITrustMyGut's picture

Is anyone on here familiar with the CAFR stuff? ( Comprehensive Annual FInancail Report )  Alledged untold billions of monies off books?

is it another bs underground saviour.. or is it real?

Sun, 07/08/2012 - 14:29 | 2596514 putaipan
putaipan's picture

i have been calling for tylers/zh's thru multiple threads to please adress this also. there is a real need to adress this outside of a forum where people already 'believe'. please - comment or create thread, please?

Sun, 07/08/2012 - 14:42 | 2596532 putaipan
putaipan's picture

btw- (just thought of this....) before george washington's blog picked up on this, all mention of CAFR was intertwined with the notions of person and national coporate identity- i.e the corporation of the united states, the corporation of you or me spelled in all caps. this then leads to the us bankruptcy of '33, our personal liability of that coorporate debt agreed to by accepting a social security #. ergo- accepting the savior existence of the carf funds means we'll have to accept the terms of our debt servitude..... ergot indeed.

Sun, 07/08/2012 - 22:53 | 2597690 ITrustMyGut
ITrustMyGut's picture

thanks for acknowledging and adding too.. yes...  we need more info ....  beyond already believers...

Sun, 07/08/2012 - 10:31 | 2596158 Republicae
Republicae's picture

I have to wonder if those who support the culling of the population will support it when they are the ones chosen to be culled...

Of course, they could make it a much easier process and simply shoot themselves now and start the process early!

Sun, 07/08/2012 - 14:46 | 2596542 putaipan
putaipan's picture

really! the inverse culling is all that is requred.... eugenics for the .01% means resources and prosperity for the 99.9% millinal malthusianism!

Sun, 07/08/2012 - 02:57 | 2595949 Davalicious
Davalicious's picture

Go long Soylent green

Sun, 07/08/2012 - 03:25 | 2595963 Scalaris
Scalaris's picture

 

Shocking.

A linear correlation between world population and improvement of life via an evolution in medicine, application of technological innovation and proliferation of national trade systems.

Malthusians are becoming tiresome; they should get a fcking grip already and attempt to form a coherent solution instead of resorting to the same regurgitable rhetoric.

Sun, 07/08/2012 - 09:49 | 2596110 GMadScientist
GMadScientist's picture

Don't worry, the <edible animal vector here> Virus will take care of that problem anyway.

 

Sun, 07/08/2012 - 14:48 | 2596546 putaipan
putaipan's picture

a double post is called for here.

Sun, 07/08/2012 - 09:43 | 2596105 Bogdog
Bogdog's picture

Certainly a call for a New Eugenics. To be characterized by engineered market/currency/social collapse followed by mass starvation, war, pandemic pestilence. I can see the evil plan now. We are all pawns in someone elses game brought about by our pesky procilivity to procreate.

So, basically, all you people need to stop fucking.

There! I've connected all the dots for you.

 

Sat, 07/07/2012 - 23:51 | 2595863 ghenny
ghenny's picture

No its fraud, waste and abuse.

Sun, 07/08/2012 - 09:48 | 2596104 grid-b-gone
grid-b-gone's picture

Power, hubris, habit, fighting the last war, sticking with the politically easiest policy (why EU austerity was abandonded), and other factors are all at work as central banks slowly lose control over their fiat currencies and economies.

Similar ebbs and flows are seen in corporations. Remember when GE and P&G grew 15-17%? Now they're working on at least a decade of stagnation. PG can be bought for less now than before the 2008 meltdown and it probably has lower to go.

Remember when Greenspan was god-like and the effect lingered for many years even after the bubble popped? Jack Welch and P&G brand managers experienced similar "can do no wrong" runs. 

As with Zeus, when a diety's power is eventually, commonly known to be lacking, we humans first look for a new diety. That's just how we roll.

We're always looking for the magic beans, and the cunning, the connected, the carpet-bagged, and the electable are always there to insinuate themselves into the next plausible solution.

The current solution would be to allow slow deflation to work off the excess, moderate worldwide wage gaps, and preserve the middle class - the goose that lays the golden eggs. Instead, we, in effect, ride Dr. Strangelove's rocket to a solution that only market and fiat currency limits will reveal to us. 

Add central bank control to your list of oxymorons.

Sun, 07/08/2012 - 13:41 | 2596454 All Risk No Reward
All Risk No Reward's picture

Macho Man,

The system in place now is working WONDERFULLY!  They just didn't bother to tell the proles what it was engineered to do.

Henry Ford told us...

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.” Henry Ford

Charles A. Lindbergh told us:

“The new law will create inflation whenever the trusts want inflation. It may not do so immediately, but the trusts want a period of inflation, because all the stocks they hold have gone down... Now, if the trusts can get another period of inflation, they figure they can unload the stocks on the people at high prices during the excitement and then bring on a panic and but them back at low prices.…The people may not know it immediately, but the day of reckoning is only a few years removed.” (Congressman Charles A. Lindbergh, referring to the Federal Reserve act, Congressman Lindbergh stated this a few years prior to the stock market crash in 1929 which ushered in the Great Depression Congressional Record, Vol. 51, p. 1446. December 22, 1913.)

Andrew Jackson warned us:

Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out! From the original minutes of the Philadelphia committee of citizens sent to meet with President Jackson (February 1834), according to Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels

James Garfield warned us:

“Whoever controls the volume of money in our country is absolute master of all industry and commerce…and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”

Robert H. Hamphill warned us (even included the mode of operandi, but the bankster propaganda was soo good, the average libertarian minded person has no clue how the banksters implement deflation to asset strip society):

“We are completely dependant on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system…. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.” –Robert H. Hamphill

Woodrow Wilson eventually spilled the beans:

“A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” -Woodrow Wilson (after signing the 1913 Federal Reserve Act).

Horace Greeley spilled the beans:

“While boasting of our noble deeds were careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery.” - Horace Greeley

The system is working SPECTACULARLY!

The mega banks have seized control of Europe:

Regime Change in Europe: Do Greece and Italy Amount to a Bankers' Coup?

http://www.time.com/time/world/article/0,8599,2099350,00.html#ixzz203MgL5Sz They seized control and didn't even fire a shot.  Even worse, the average ignorati consumer thiniks Greeks were bailed out instead of the mega banks looting everyone raw, so the average moron is gonna blame the Greek people when THEY ARE POWERLESS BECAUSE THE MEGA BANKS AND THEIR POLITICAL OPERATIVES RUN EVERYTHING TO FULFILL THEIR OWN BEST INTEREST!!! More power for the crooks.  Governments protect them from criminal prosecution so they can rob everyone.  The combine with government to run the drugs, launder the drugs, and throw your children in jail for using their product.  They own the private prison system and they partner with government to use their drug running (and gun running) in order to wage war on your liberties and freedoms (private property seized, assault 2nd amendment, etc...). They offload all their toxic trash on us and guys like Warren Buffett, WHO NOT ONLY HAS NEVER PAID ANY TAXES IN HIS LIFE ONCE BAILOUTS ARE FACTORED IN, HIS COMPANY OWES $1 BILLION IN BACK TAXES GOING BACK 10 YEARS, stands up and tells the average moron they need to raise their taxes so that more money is available to bail out his criminal fascists enterprises. And they get off on the stupidity of the average "consumer."  Andrew "I killed the bank" Jackson on the $20 bill?  Yeah, they think you are a moron. George "Ownership Society" Bush?  Yeah, he meant it, but not that we would own anything like a home, but that we would be owned by the crooks that pull his strings. George "they hate us for our freedoms" Bush - HE'S RIGHT!  But he's talking about the REAL TERRORISTS - THE INTERNATIONAL BANKING CARTEL. It's all a big joke to them... taunting their ignorant prey...  eliminating our civil liberties based on their al Qaeda threat narrative while they fund al Qaeda to wage international war crimes in Libya and Syria. THE SYSTEM IS WORKING PERFECTLY, PEOPLE! WAKE. UP!
Sat, 07/07/2012 - 22:48 | 2595820 insanelysane
insanelysane's picture

What is uncontrollable is how people and organizations react every time an action is made.  Some people call it unintended consequences which they are unintended when viewed by the people doing an action and expect a specific reaction but the reaction is not unintended.  The sheeple refuse to be led.  The government can make laws to regulate every activity that people do but people will set up "black markets" or their own banking system where necessary.  Central planning doesn't work because it tries to force outcomes that aren't "natural".

That being said, the central bankers are doing what they can to keep the whole sham going.  There may be ne%farious reasons for keeping the sham going but there is also the need to keep the markets up to some stable level.  The workforce participation is LOW.  One of the sheeples largest asset, real estate, has lost 30% in value or more.  If the markets tank to where they should be, the sheeple's other large asset, 401K plan, would also be down 30% or more.  It is a reality that not many will handle well so the game continues.

Sun, 07/08/2012 - 01:31 | 2595906 Atomizer
Atomizer's picture

Choas Theory 

http://www.youtube.com/watch?v=ZfuierUvx1A

 

There is nothing frightening about a word. Once they're centrally painted into a corner, the deadly elixir potion only remains a planners viable option.

Sat, 07/07/2012 - 21:50 | 2595742 Bill D. Cat
Bill D. Cat's picture

What's the over/under on QE3 rumours this week ?

Sat, 07/07/2012 - 21:51 | 2595744 Kitler
Kitler's picture
Central Bankers Are Not Omnipotent

But those who control them most certainly are. For now anyway...

Sat, 07/07/2012 - 22:00 | 2595754 Oracle of Kypseli
Oracle of Kypseli's picture

Yes! But.....it is becoming exponentially more difficult to heard the sheeple.

Be it the internet(s), Zero hedge, a bunch of other forward thinking blogs or whatever else, it is happening.

I hope it will not take too long for common sense and conventional wisdom to be instilled in the general population. 

Sat, 07/07/2012 - 23:07 | 2595833 impermanence
impermanence's picture

Figure another five thousand years or thereabouts and people will start to catch-on.

Sun, 07/08/2012 - 09:31 | 2596092 ExpendableOne
ExpendableOne's picture

Common sense and "general population" are mutually exclusive concepts.  I give you facebook as a prime example (people of walmart as secondary).

Sun, 07/08/2012 - 10:37 | 2596167 Republicae
Republicae's picture

I would say that the political class and common sense are mutually exclusive concepts as well, politicans, once in power, tend to become a prime example of collective lunatics.

Sat, 07/07/2012 - 22:02 | 2595757 Snidley Whipsnae
Snidley Whipsnae's picture

"But those who control them most certainly are. For now anyway..."

How did you get this idea? Other than effecting fiscal policy, to some degree, what powers do TPTB have that they cannot channel through central banks?

TPTB do have power over the pols that they get elected... until the pols face a decision of 1... losing an election because the voters are pissed... or 2 throw some power brokers under the bus to quiet the constituents.

...and, when push comes to shove, power brokers will be thrown under the bus by the pols that want to preserve their positions. At least, this has been the historical norm...

Sat, 07/07/2012 - 23:44 | 2595856 sablya
sablya's picture

 

 

He who sits in the heavens laughs;

the Lord holds them in derision.

(Psalm 2:4)

But you, O Lord, laugh at them;

you hold all the nations in derision.

(Psalm 59:8)

 

Sun, 07/08/2012 - 02:52 | 2595945 Deo vindice
Deo vindice's picture

Good one! Bankers might think they are gods, but they aren't.

Omnipotence is His unique prerogative.

Sat, 07/07/2012 - 21:53 | 2595746 Hulk
Hulk's picture

The best laid plans of mice and men. Puny humans...

Sat, 07/07/2012 - 23:31 | 2595847 SMG
SMG's picture

Hulk hate...Puny humans! :-)

Sat, 07/07/2012 - 21:54 | 2595747 bob_dabolina
bob_dabolina's picture

Simplifying the monetary transmission mechanism into four very broad categories: the cost of capital; the willingness to lend; the willingness to save; and the foreign exchange rate;

What about the willingness to borrow? It's the only thing central banks can't control.

Sat, 07/07/2012 - 22:20 | 2595783 nmewn
nmewn's picture

"What about the willingness to borrow? It's the only thing central banks can't control."

You've hit on it...the public (by and large) are not as brazenly unethical as a central bank...not yet anways. Of course, with recently upheld "laws" that day is fast approaching.

Sat, 07/07/2012 - 22:23 | 2595787 MachoMan
MachoMan's picture

the general willingness to borrow is insatiable...  the general willingness to borrow by credit worthy borrowers is finite...  (and shrinking).

The other issue is that the government can and will mandate borrowing...  if you can't make ends meet because of monetary policy, among other things, then you're going to borrow to keep up...  it might be a de facto mandate, but it's a mandate.  (the inflation tax)

Sat, 07/07/2012 - 22:38 | 2595810 Caviar Emptor
Caviar Emptor's picture

the general willingness to borrow is insatiable....but the willingness to repay not so much. And that's why not everyone is willing to borow all the time, much like not everyone gets hooked on drugs and alcohol. And not everyone is willing to lend, as you pointed out

Sat, 07/07/2012 - 23:03 | 2595818 bob_dabolina
bob_dabolina's picture

I'm not sure I really agree with anything you said.

If you can't make ends meat you're going to borrow to keep up? uhm, what you're going to do is cut back on discretionary spending which makes growth stagnate. Also, demand for credit is nowhere where they want it and far below levels seen during the credit boom, which are exactally the type of animal spirits they are trying to summon in order to bring the UER down and home prices up.

The real meat and potatos of borrowing lately has come from student loans. Student loans can be deferred techincally forever (and they don't get discharged in bankruptcy), so if you never have to pay the loan back of course there will be demand for it. HOWEVER, interest on servicing the loan will add up and down the road the debtor will have to use more of their future discretionary income to pay back the loan when they end up getting a job...which has a deflationary outcome.

Furthermore, Bernanke doesn't control the interest on student loans. The Senate sets that interest rate.

Sun, 07/08/2012 - 02:55 | 2595947 Deo vindice
Deo vindice's picture

bob says "If you can't make ends meat..."

Don't know about you, but I have a hard time making ends meet.

Now if I could only make ends meat, I could put the enitre beef industry out of business and retire a very wealthy person.

 

Sun, 07/08/2012 - 11:07 | 2596197 bob_dabolina
bob_dabolina's picture

I've seen it both ways and it's been explained to me both ways.

Thanks for your diligence.

 

Sun, 07/08/2012 - 11:15 | 2596213 AnAnonymous
AnAnonymous's picture

And what is the explanation for make ends meat?

Sun, 07/08/2012 - 11:40 | 2596257 bob_dabolina
bob_dabolina's picture

You can only provide the bare minimum to feed your family. As in, you can only afford the scrap from the butcher or the "ends meat".

It has also been explained to me in the sense that you don't have enough for inflows to meet outflows, or make "the ends meet"

Either way, is this really an important conversation? The essence of either variation means the same thing.

Sun, 07/08/2012 - 11:45 | 2596266 AnAnonymous
AnAnonymous's picture

Considering that eating meat was a sign of a rather well off standard of life, the distortion must come from US citizenism.

People who used to live within their means did not eat meat.

Sun, 07/08/2012 - 09:41 | 2596103 MachoMan
MachoMan's picture

I think it's been proven time and time again that the only deleveraging occurring is forced deleveraging...  e.g. bankruptcy.  It only happens when creditors step in and cut up the credit card so to speak.  I agree that there should be a curtailing of discretionary spending leading to a stagnation of growth, in theory, but I'm not sure that's occurred yet and I don't think anyone has much of an accurate prediction for when it will happen...  rather, the mechanism for deleveraging isn't on the rational debtor side, it's on the creditor side.

The other issue is that you have policy after policy, law after law, that does not require a debtor to recognize his loans...  to defer payment if not reduce principal.  In short, this means deflationary forces are kept at bay.  (the ultimate lender not caring whether repayment occurs). 

I agree with your premise, but that hasn't really materially occurred yet and I'm not sure when it's going to happen...  and, by the time it happens, the currency might have died.

Sun, 07/08/2012 - 13:42 | 2596457 ZeroAvatar
ZeroAvatar's picture

When it's all said and done, Bernanke is impotent.

Sun, 07/08/2012 - 01:01 | 2595894 Never One Roach
Never One Roach's picture

I eat, shop and watch Amercian Idle.

 

Therefore I am.

Sun, 07/08/2012 - 02:04 | 2595922 r00t61
r00t61's picture

With the recent decision by SCOTUS, the government does have an excuse to force people to borrow.

The Affordable Citizens' Loan Act will require everyone to carry a minimum personal loan balance of at least $5,000 a year.  If you don't, and try to stay out of debt, you'll be fined for not doing so.  This fine is alternatively known as a "tax." 

And this taxing power, vested in Congress, is perfectly Constitutional.

The problem is solved.

Sun, 07/08/2012 - 09:34 | 2596093 ExpendableOne
ExpendableOne's picture

Followed closely by the "Affordable Presidential Campaign Act", give to one of the two parties or else!

Sun, 07/08/2012 - 09:40 | 2596099 bob_dabolina
bob_dabolina's picture

Well...not EVERYONE

http://www.nypost.com/p/news/national/unions_get_pecial_treatment_in_hea...

Also those with a low income are exempt from paying it, illegal immigrants, the disabled, and others.

Sun, 07/08/2012 - 14:33 | 2596519 Disenchanted
Disenchanted's picture

 

 

"willingness to borrow"

 

I wonder if the majority of the general public even understand any longer that when they swipe that 'credit' card they are borrowing?

Sat, 07/07/2012 - 21:55 | 2595749 Caviar Emptor
Caviar Emptor's picture

I contest the notion that central bankers were responsible for defeating inflation in the 1980s

Sat, 07/07/2012 - 22:09 | 2595768 duncecap rack
duncecap rack's picture

On what basis? To me it seems clear Volker knocked down inflation. To what do you attribute the sudden absence of inflation?

Sat, 07/07/2012 - 22:34 | 2595802 Caviar Emptor
Caviar Emptor's picture

You've been conditioned to think that. Keep in mind these facts: the change in method for calculating CPI that was instituted at that very time, change in crude oil prices, and the end of growth in real median income which started at that exact time also combined with the start of massive offshoring of jobs and industry. The pact with the devil was made to fight inflation because of the mushrooming twin deficits that caused Nixon to make the irrevocable decision to shut the gold window and pay for the deficits with increasingly worthless paper. There had to be political solutions to inflation after that. 

Sun, 07/08/2012 - 07:50 | 2596035 Quinvarius
Quinvarius's picture

On the basis that inflation stopped when gold was correctly priced to go back to a gold standard if we had to do that.  Inflation had simply run its course.  Volcker merely caused a massive needless recession as all needless ham handed interventions do.

Sun, 07/08/2012 - 11:03 | 2596193 grid-b-gone
grid-b-gone's picture

I agree Volcker and his rate decisions get the credit. There's nothing like a prime rate in the 20% range to curb speculation and slow an economy.

Under high interest rates, very little malinvestment occurs. Volcker also did not leave those very high rates in place for long. Once the trend of 0.25% reductions began, there was confidence the worst was over.

Savers getting 14% on CDs were a springboard for new growth after 1983.

A long period of 0% interest for banks and 1% for savers as we have today lets everyone in the economy know "we got nothin" and have decided to accept malinvestment in lieu of core growth.

Central banks need to stop trying to preserve the fraudulent market and real estate levels of 2007 and let a free market repair itself.

Sat, 07/07/2012 - 22:01 | 2595756 Peter Pan
Peter Pan's picture

Guess who wrote this:

"I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel--these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national."

Believe it or not it was Keynes himself in 1933 when he was reflecting on some previously held positions.

When banking is corrupted it is like introducing a contaminant in a school canteen. The bug will travel to all the other members of the family. This is what we are suffering from today with the possibility of quarantining the situation being totally out of the question.

Only debt write-offs can kill the disease followed by a curbing of international financing.

Sat, 07/07/2012 - 22:07 | 2595762 Snakeeyes
Snakeeyes's picture

In fact, there are now neutered. They are powerless to do anything at this point. Which is pretty scary.

http://confoundedinterest.wordpress.com/2012/07/02/fed-having-trouble-st...

Sun, 07/08/2012 - 02:58 | 2595951 Deo vindice
Deo vindice's picture

Ah, but as long as it isn't me, it can't really be happening. Isn't that the mentality of most?

England, Ireland, Russia, Germany. Joe average doesn't care until it comes to his bank.

The code of silence by the MSM on reporting any of this isn't helping matters either.

Bank runs: coming to your town soon.

Sat, 07/07/2012 - 22:08 | 2595766 q99x2
q99x2's picture

Look these creeps, the bankers, worked at raping the economies of the world to get every last penny possible through fraud. They preyed upon the system until they became the system and now they are devouring themselves. Now they will be arrested and thrown into prisons around the world.

But they know this and have to decide how to bring the system down with the least chance of getting captured. I think they are bringing it down now, intentionally.

Unfortunately they are not very capable of dealing with uncertainties and the Federal Government is like having Frankenstein ready to act on their behalf. There is no future without a very big adjustment to the way human societies work. In particular the monetary system must change to an open-source system. The essence of wealth, of worth that can be exchanged, can no longer remain in the hands of sociopaths.

Sat, 07/07/2012 - 22:22 | 2595786 dolph9
dolph9's picture

People won't realize what's happening because they were born into and believed in a system of fiat money symbolism, and nothing short of collapse will convince them that the fiat money isn't real.

And if you ever try to point it out to them, you're a seditious un-American who must be ignored or, worse, shot.

I'm telling you, the problem lies deep.

Sun, 07/08/2012 - 09:15 | 2596079 Winisk
Winisk's picture

I have often thought that the faithful would continue to believe in God if the Pope himself said it was all a joke.  If The Bernank went on TV and stated that it is all over for the dollar, as it was predetermined to do, most people would be absolutely mentally blocked.  The amount of faith people have in the durability of the numbers in their bank account is scary.  Central bankers can destroy the value of those numbers and while it causes complaint, we forge ahead (most still not connecting inflation with the bankers), but if one were to delete the numbers themselves, that would cause a mental breakdown for all who went through life stroking their imaginary wealth. They are just fucking numbers that are molested daily by the money handlers. 

Sat, 07/07/2012 - 22:30 | 2595796 midgetrannyporn
midgetrannyporn's picture

Bond: Do you expect me to talk?

Goldfinger: No, Mr Bond, I expect you to die!

http://www.youtube.com/watch?v=U1TmeBd9338

Sat, 07/07/2012 - 22:28 | 2595797 sangell
sangell's picture

Imagine the Central Bank of Haiti headed by the most brilliant economist the world has every known and with equisite timing implements just the right policy at the right time. Monetary transmission is perfect. Reductions in interest rates translate instantaneously into lower interest rates for business and consumers. Does Haiti rocket to the top tier of global economies? No, of course not. It has no industry to speak of, its people largely illiterate. Putting money in the hands of people there will not spur economic production because the ability to produce is so constrained.

To a lesser but not entirely absent extent the same problems exists in developed nations. Inviting a fool to borrow money to buy a new Escalade or McMansion causes a short term economic boost till the inevitable default comes. There's you blockage in monetary transmission policy.

Sat, 07/07/2012 - 22:35 | 2595808 Kiss My Iceland...
Kiss My Icelandic Ass's picture

Not only are central bankers "not omnipotent", it's possible they're all "impotent" ! Maybe that explains their erratic behaviour :)

Sat, 07/07/2012 - 22:41 | 2595813 Golden Boy
Golden Boy's picture

 To anyone who follows the gold cycles, friday had bearish implications for gold bugs such as myself. I'm still crunching the numbers on Oxmetrics but the odds of a DCL failure over the coming days are high.

Stay thirsty, fellow gold bugs.

 


Sat, 07/07/2012 - 23:25 | 2595842 Divine Wind
Divine Wind's picture

Most of the usual mouths are calling for a severe beat-down next week.

But no one is explaining WHY (at least that I can see).

Lots of chart talk that it looks like something out of the 70s

Perhaps a broad phyz sell off to raise cash and cover stupid ass exotic investments?

Something stinketh and it comes from the direction of London.

 

 

Sat, 07/07/2012 - 22:57 | 2595827 tmosley
tmosley's picture

Omnimpotent.

Sat, 07/07/2012 - 23:16 | 2595837 TooBearish
TooBearish's picture

What has failed to be mentioned in UBS's unsurprising shallow analysis is that devloped western economies have spent themsleves into oblivion, financing wars, social programs and monopolistic crony capitalists plunging themselves into neo fascist regimes.  Central banks, being political institutions at the core, have enabled thru monization of insane deficits, have allowed no market discipline to the criminal politicians running mature western economies.  The Central Banks have defended, enabled and strengthened the monopoly TBTF banks throughout the financial crisis with no intention of "fixing" the textbook monetary transmission mechanism to long gone traditional capitalist economies that thrive in competive environs, not monopolist command and control economies- the one being embraced currently. Hiding under the Keynesian blanket, repeated less than 75 years ago, is the nasty uber class that wants control over all resources and most of humanity.

This time the just might get away with it.

 

 

Sun, 07/08/2012 - 02:33 | 2595907 Colonel
Colonel's picture

This permanent engine of corruption, said Jefferson, "was the Bank of the U.S." A central bank, once established, would be very difficult to destroy, and would inevitably become a permanent source of financing for political bribery and manipulation. How prescient.

http://mises.org/daily/4270

Sun, 07/08/2012 - 06:31 | 2596012 TPTB_r_TBTF
TPTB_r_TBTF's picture

.

"This time the[y] just might get away with it."

 

They will get away with it; TPTB are TBTF.

Yawl ainT gonna hang nobody!

Sat, 07/07/2012 - 23:31 | 2595848 LeBalance
LeBalance's picture

An essay on the structure and functionality of CBing begins and ends with the understanding that the State is a criminal organization for Control.  As an organ of the Gangsters the CB is also a criminal organization.  Always.

Sat, 07/07/2012 - 23:32 | 2595849 Catullus
Catullus's picture

What the LIBOR "scandal" (which is just bank on bank crime) is exposing is that central banks are ineffectual at actually inflencing interest rates.  An interest rate is something that can't be controlled by a centralized authority with a monopoly ability to create new money.  LIBOR is irrelevant today because the market is illiquid and has been illiquid since 2007.  Basically $500 trillion in debt instruments are being benchmarked off a rate that has no meaning for what it really costs banks to borrow money in the open market. 

And why?  Because no amount of liquidity provisions are going to cause a bank to take on someone else's garbage via repos, swaps, or  collateral postings. It was true in 2007 and 2008 when MBS, CMBS, Coporate debt all became suspect.  It's true now with Eurobonds.  There's no risk/reward balance to be had.  The market will eventually not clear and the credit markets will freeze again.

The central banks are reactionary institutions that only ever have one arror in the quiver: money creation.  That's it.  There's no talking up the dollar.  No "setting" interest rates.  No adding confidence to the market.  All they can do is print.  They can say they're providing liquidity or will accept other assets as collateral, but in the end this is just more money printing. 

Sat, 07/07/2012 - 23:41 | 2595854 icanhasbailout
icanhasbailout's picture

Omnipotent, incompetent, what's the difference? Ben has at least one of those covered.

Sat, 07/07/2012 - 23:43 | 2595857 jwthomps
jwthomps's picture

When the total return demanded/expected on debt and investments exceeds nominal world growth, the world has passed the point of Peak Paper Debt and the animal spirits of Debt Deflation are unleashed upon the weak assets of the world including the sovereigns.  This current situation is known or felt by almost every person in the world and yet this reality eludes the thoughts, equations and theories of seemingly every economist and bureaucrat.    

Let us suppose that if they can't understand and fix the problem with their theory and jargon, then we will have a difficult to impossible task of understanding anything if we use the intellectual economic foundation that they created.  The failure of predictability and the failure of policy actions should be a small hint that the entire edifice is grossly flawed but truth seldom and slowly climbs the Ivory Tower.

I appreciate the economic writing, but I think understanding will be found in a different thought structure.

Sun, 07/08/2012 - 10:13 | 2596130 GMadScientist
GMadScientist's picture

http://www.youtube.com/watch?v=OzT26P4IUqk

automatons with business suits swinging black boxes,
sequestering the blueprints of daily life
contented, free of care, they rejoice in morning ritual
as they file like drone ant colonies to their office in the sky

I don't ask questions, don't promote demonstrations,
don't look for new consensus, don't stray from constitution
if I pierce the complexity I won't find salvation
just the bald and over truth
of the evil and deception

there is an inner logic,
and we're taught to stay far from it
it is simple and elegant,
but it's cruel and antithetic
and there's no effort to reveal it

graduated mentors stroll in marbled brick porticos
in sagacious dialog they despise their average ways
betraying pomp and discipline, they mold their institution
where they practice exclusion on the masses every day

decorated warriors drill harmless kids on pavement
simulating tyranny under red alert
protecting the opulent and staging moral standard
they expect redemption of character and self-worth

(no equality, no opportunity,
no tolerance for the progressive alternative...)

 

Sun, 07/08/2012 - 10:59 | 2596189 jwthomps
jwthomps's picture

No man can see beyond what his own lamp can light so there is no equality, there is only the opportunity you see and what a man sees is his only alternative.

One of my basic insights is "Every man has a mind."  This is a problem for social political and economic theory. 

Another: "Belief is the only truth people can hold to for science is only currently accepted theory."

Knowledge is an infinite darkness of which each man illuminates a small part.

We like ants move in a world of infinite possibilities and like ants we organize ourselves in social units to do the things that social units do.

Peace in Science or Peace in Mad.

Sat, 07/07/2012 - 23:55 | 2595866 stlouisray
stlouisray's picture

While I generally agree with you, you seem to forget that 'he who has the gold makes the rules.'

Sun, 07/08/2012 - 00:14 | 2595872 jwthomps
jwthomps's picture

I hope you are right but I fear it will be the governments that have the guns that make the rules.

Sun, 07/08/2012 - 04:42 | 2595981 Alpha Monkey
Alpha Monkey's picture

First they ignore you, then they laugh at you, then they fight you, then you win.  Gold is non-violence, imo.

Sun, 07/08/2012 - 06:05 | 2596002 The Alarmist
The Alarmist's picture

I'd like to amend that maxim to "Those who make the rules end up with all the gold."

Sun, 07/08/2012 - 06:40 | 2596017 TPTB_r_TBTF
TPTB_r_TBTF's picture

or:

Those with the Guns take the Gold and set the Rules.

Sun, 07/08/2012 - 01:39 | 2595911 Atomizer
Atomizer's picture

Time is short lived, each day brings a new law to protect themselves from harms way.

http://www.whitehouse.gov/the-press-office/2012/07/06/executive-order-as...

Sun, 07/08/2012 - 05:59 | 2595999 The Alarmist
The Alarmist's picture

First of all, it is an Executive Order, not a law.

Second, didn't you see the Get out of Jail Free clause (7-f)? By simple declaration, no harm is caused by this XO from BO, so you have nothing to worry about.

Sun, 07/08/2012 - 03:59 | 2595971 jomama
jomama's picture

i'm just gonna leave this here.

Sun, 07/08/2012 - 06:00 | 2595997 TWSceptic
TWSceptic's picture

People always talk about the danger of central banks, and they are right. But they often forget the danger of stupid people, and there are many of those. It's still the majority of the population with an IQ below 100 that is borrowing money or taking money from government. It's true that government and central banks should have more responsibility, but it's still only a small group. A country is steered by the majority of its population, if the system collapses, it's not just because of the actions of a small elite, it's because its population failed as a whole.

 

Furthermore, ask these questions to people on the street

- do you want a much smaller government that can do much less for you, so debt can be reduced?

- do you want to accept a temporary deep recession so the economy can have sustainable growth later on?

- do you want short term pain for long term gain?

 

Most people will choose the easy way out, because that is how this generation thinks.

Sun, 07/08/2012 - 06:03 | 2596000 The Alarmist
The Alarmist's picture

I dunno ... it seems to me that most of the harm is coming from the plans and actions of our super-genius appointed lords and masters who claim they are working to better the lot of us in "the lower 99."

Sun, 07/08/2012 - 14:17 | 2596503 A82EBA
A82EBA's picture

Ls & Ms who we permit to run our lives..it's on us

Sun, 07/08/2012 - 07:43 | 2596032 r00t61
r00t61's picture

The negative externalities and moral hazards created by "stupid people" making stupid decisions are generally limited in scope, and in the instances when they are magnified, are precisely because the "smart people" have erected systems that perform such magnification.

The welfare state that supports the "stupid people" did not arise because some "Progressives" really felt bad for the underclass.  It arose because Bismarck made a calculated decision, realizing that creating and maintaining a welfare state was cheaper in the long run than dealing with the occasional civil insurrection when the working class finally said "we're mad as hell and we're not taking it anymore."

Sun, 07/08/2012 - 08:34 | 2596054 TWSceptic
TWSceptic's picture

If you think government has any incentive to do stupid things without a stupid population being present you are simply confusing cause and effect. I argue that we actually do have a government of the people by the people and for the people. It's just that the people are clueless about the right policies. It's not a coincidence that sites like this are a niche with a narrow audience.

 

Expecting governments to do the right thing when their main incentive is to get reelected in a country with a majority of uneducated morons is very naive. Junk me all you want, you can't junk reality.

Sun, 07/08/2012 - 10:05 | 2596117 dwdollar
dwdollar's picture

I agree that stupid people are ultimately the problem as their collective noise washes out the minority trying to shout answers.

However... how can anyone take the elections seriously when there's no ID checks and basically zero auditing of the computer code by independent entities?

The game is so hopelessly broken at all angles there's only one solution: Complete collapse.

FUBAR

Sun, 07/08/2012 - 10:02 | 2596102 Winisk
Winisk's picture

Sustainable growth eh?  Hmmm...not so sure that exists in this finite world.  Let's try working toward an equilibrium where conservation is emphasized.       

Sun, 07/08/2012 - 06:37 | 2596015 Againstthelie
Againstthelie's picture

I don't agree at all, that monetary policy has reached a limit.

Imagine the following:

QE in the form of buying mortages. Or the government buys underwater mortages and the FED buys the treasuries needed for that amount of money.

Instead of having too high mortages, people would be freed of them and be able to consume again.

And looking into history, there is not a SINGLE example, where FIAT money and central banks were not able to create inflation.

So to me this article smells like disinformation. FEAR the deflation! The central banks tools are becoming useless! This means the dollar is safe and will keep it's buying power!

Is there any better management of the inflation expectations?

 

This article is BS. There is absolutely no reason in a FIAT central banking system, why deflation should not be overcome. The difficulty the central bankers face is the amount of money printing must not be to less and not too much. But the propaganda baout deflation and that money printing becomes a blunt knife is wrong, how the simple example above prooves.

 

Sun, 07/08/2012 - 09:18 | 2596083 andrewp111
andrewp111's picture

If Bernanke buys all the mortgages (at their real market value) by Eminent Domain, that will bailout the debtors who will be guaranteed to reelect Obama. But it will destroy all pension funds at the same time by eliminating interest income from the economy. And all the States and Localities with fat guaranteed pensions will have to boost taxes to the sky and lay millions of workers off. It is not free money, but rather just a redistribution fo income.

Sun, 07/08/2012 - 10:22 | 2596148 Againstthelie
Againstthelie's picture

Do you really believe, if the central banks stop printing money, that the pension funds will survive?:P What logic is that? There is too much debt and pension funds are collectors of debt...

Do you know what deflation does? It destroys the treasury market not because of zero interests (btw. which is positive for treasury market), but because the states lose their income while the spending grows.

Therefore it's granted that they will print. And here comes the disinformation of the above article into the game. They can and will print as much as they need to create inflation and they can create inflation at will. Their abilities to create inflation are unlimited as i have shown with a simple thought experience.

It's surprising that so few readers of ZH seem to see the obvious and how perfectly their own inflation expectations already have been managed down.

Sun, 07/08/2012 - 13:41 | 2596455 sablya
sablya's picture

You're equivocating on they.  I think this was implicit in several of the replies to you but you chose not to see it.  "They" meaning the Fed cannot necessarily create inflation because they can't control M2 Velocity.  All they can do is increase M2.  But if the money does not flow, they've really only created the potential for inflation not inflation itself.

Your thought experiment involves a joint action of the Fed and the fiscal authorities.  "They" must include the Congress.  If the Congress is not involved, there can be no target for the created fiat, it only necessarily benefits those who are the immediate beneficiaries, the feds own member banks.  The article is about the limited power of Central Banks but you are responding with a different "they".

I don't think you're taking the time to understand the article above in light of the present realities.

Sun, 07/08/2012 - 14:24 | 2596501 Againstthelie
Againstthelie's picture

Do you really believe, if the government was buying mortages and the FED printing the money for that, that this money would not go directly into the economy and speed up the velocity? You deflationists are judging from the status quo and

a) do not see, that the arsenal of the CBs is unlimited and

b) so far they have tried to inject the money not directly yet.

Concluding that this means they have used up all their tools and are unable to create high inflation, is ignorant not only about the tools they have, but also about the lessons from history.

The question is not if they were helpless against deflation, the only question is, how low are they willing to let markets go down, before they will use the appropriate tool.

And regarding the argument about congress: I'm puzzled that still so many people believe in western politicians. How much and how often must they lie to you and brake their promises until you will wake up? Do you really believe, if the economy begins to contract and the unemployment to raise and the banks ringing the governors and telling them, that they will be forced to shut down their bank within a few days, that Congress would say NO to more money printing?! Would YOU be the one being blamed for the collapse? And you believe the Plutocrats are willing to be? :P Not a handful one of them will keep their heads up and be the ones to be blamed for the collapse. If you believe that you can also believe me to be the Kaiser of China.

Sun, 07/08/2012 - 10:15 | 2596137 itstippy
itstippy's picture

"QE in the form of buying mortages. Or the government buys underwater mortages and the FED buys the treasuries needed for that amount of money."

OK, so now either the FED or "the government" has a shitload of underwater mortgages on their balance sheets.  This would help prop up real estate prices to some extent.  It would certainly help the banks and institutional investors currently holding this shitload of underwater mortgages to get them off their books.

"Instead of having too high mortages, people would be freed of them and be able to consume again."

Huh?  How would either the FED or "the government" overpaying for shitty mortgages translate into the homeowners being freed of them?  What is the transmission mechanism that would accomplish this?

If you envision "The Government" buying out your $250,000 mortgage and then turning it back to you as a $150,000 mortgage, that is NOT a monetary policy.  That is a fiscal policy, a ""targeted stimulus", and would require an act of Congress.  It's not something the FED could do even if they wanted to.

Sun, 07/08/2012 - 10:27 | 2596154 Againstthelie
Againstthelie's picture

Learn to read and to understand what was written instead of animal like reflexes.

My simple exampe shows how easy it was, if everything else fails, to create inflation: just print the money and give it to the people.

In history there is not a SINGLE example, where a FIAT-money system failed to create inflation. How comes it, that ZH readers do believe in things that never have happened? This i call perfect inflation management! Your dollar is safe! Treasuries are safe! Inflation is not the danger, we don't even know, if we could overcome the deflationary foces... BS³!

Sun, 07/08/2012 - 11:55 | 2596290 itstippy
itstippy's picture

I agree with you: the FED can create inflation at will by simply creating money and monetizing debt.  They could announce a new QE3 tomorrow where they buy $15T of US Treasuries and place them on their balance sheet.  That would definately cause inflation.  It would not necessarily promote economic growth.

You and I read the original article differently.  I read it as a warning that Central Banks are not omnipotent; they cannot "fix" a Nation's economic woes through monetary policy alone.  No matter what Bernanke says about his remaining arsenal of "unconventional means," a Central Bank is quite limited in their options.  There IS NO magic transmission mechanism through which Bernanke can direct a stream of newly printed money to create jobs or stimulate consumer demand for goods & services.  He can create inflation, yes, but not growth or economic recovery.

Sun, 07/08/2012 - 07:24 | 2596024 Kina
Kina's picture

These are the times that try men's souls: The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as freedom should not be highly rated.

Sun, 07/08/2012 - 07:49 | 2596036 Quinvarius
Quinvarius's picture

Every central banker intervention has cost a piece of the real economy.  40 years of costing us little pieces has left us with nothing.  CBs are complete and utter terrorists.

Sun, 07/08/2012 - 10:33 | 2596161 Againstthelie
Againstthelie's picture

What did i write about and what are ZH readers implying? That's breathtaking!

You are not even capable to recognize a factual argumentation from a judgement if it was good or bad? OMG, i didn't bash Bernanke, so i was defending him? Define braindead. You believe the masses were sheeple? What are you if you are not even capable to recognize, that my description was not in favor or against CBs, it was just the factual statement, that the CBs weaponry arsenal never has failed to create inflation with fiat currencies.

Name me one example in history, where they failed to create inflation or STFU!

Sun, 07/08/2012 - 08:58 | 2596068 flow5
flow5's picture

At any juncture where you run across a commentator that gives a sermon on "liquidty preference" you can immediately stop reading.  Keynes' liquidity prefence curve is a false doctrine. 

The money supply (and thus commercial bank credit), can never be managed by any attempt to control the cost of credit (i.e., thru pegging the interest rates on governments; or thru "floors", "ceilings", "corridors", "brackets", etc). 

The effect of Fed operations on the money stock using interest rates as the monetary transmission mechanism, is INDIRECT, and varies WIDELY over time, and in MAGNITUDE.

Sun, 07/08/2012 - 09:02 | 2596072 booboo
booboo's picture

Knowledge has it's limitations while stupidity knows no bounds. You cannot fight stupidity with knowledge, stupidity has to run it's natural course which always leads to the worst possible outcomes and it always ends with stupidity panting hands on it's knees, exhausted, with it's tongue hanging out on a field litered with the corpse of both the wise and ignorant. Best to just stay clear. 

 

Sun, 07/08/2012 - 09:51 | 2596112 GMadScientist
GMadScientist's picture

Knowledge is for fighting ignorance, and works well, if only some would apply it.

Stupidity, on the other hand, is best fought with birth control.

NorPlant Cross-Bow!

Sun, 07/08/2012 - 10:23 | 2596149 tony bonn
tony bonn's picture

"... Apocryphally this was “memento mori” – “remember you are mortal”..."

i prefer sic transit gloria mundi.

Sun, 07/08/2012 - 10:58 | 2596183 SDRII
SDRII's picture

deutsche post atms down 

Sun, 07/08/2012 - 11:24 | 2596187 TNTARG
TNTARG's picture

"Central Bankers" is a misleading expresion.

We're talking about a bunch of guys who have the priviledge, the power to control finances.

States should take the Central Banks under the State's control. Fuck this subhuman élite and their genocidal behavoir.

Sun, 07/08/2012 - 11:01 | 2596191 cherry picker
cherry picker's picture

The origins of America started with a tax that the colonists thought unfair as they had no say in the policies which affected them.

Today we see the same thing occuring, the few making decisions for the many and the many are expected to pay without say.

The Tea Party is right, so is OWS.  The few painted these movements as racist, squatters and never do wells.

While the comfortable middle class (what is left of it) watches television their freedoms and rights the original Tea Party people fought for are being stripped away and the balance owing is growing.

As they buy I-Pads and watch commercials on the cable and satellite service they pay taxes on, the other side is winning and before a person knows it, they won't be able to purchase the newest I-Pad and their television service is cut off due to non payment, so they go to their refrigerator and find it empty.....

As those who are in control are wasting hundreds of thousands of dollars if not more flying around the country lying and creating hate toward opponents they fear may take their 747 toys and yachts away.

The answer is simple.  Let Ceasar fix his problems, we'll fix ours...

Sun, 07/08/2012 - 11:17 | 2596217 Colonial Intent
Colonial Intent's picture

Excellent post +100

Sun, 07/08/2012 - 14:22 | 2596507 A82EBA
A82EBA's picture

eventually TPTB will be irrelevant, it will be us against the zombies

Sun, 07/08/2012 - 11:14 | 2596210 rsnoble
rsnoble's picture

Meanwhile US citizens are getting ass fucked left and right without lube and no reach-around as the elite have spent all our$ for the next 500 years on a bunch of bullshit wars which are no where near over.

We're just a bunch of caged fucking sheep getting fleeced over and over, nothing left but a bunch of bloody scabs. At this point in time im wondering if the makers of fly repellant wouldn't be a good investment?

It's not just a bunch of talk anymore:

http://www.youtube.com/watch?v=43YKJzgVd7U&list=UUpwvZwUam-URkxB7g4USKpg&index=1&feature=plcp

The fucking idiots are going to get us all killed over this bullshit.  It almost makes(or it does) life pointless with all this crap going on why even try anymore?  I hate sounding like a quiter but fuck dude.

Sun, 07/08/2012 - 11:20 | 2596224 rsnoble
rsnoble's picture

BTW since the US plans are all too obvious by now I have to wonder if someone else isn't going to take the offensive?  I mean what the hell, if you know you got it coming my as well go out in style.

Sun, 07/08/2012 - 12:18 | 2596340 Ponzi Unit
Ponzi Unit's picture

Tidy treatment that ignores the fact that CB policy is designed to help the banks and impoverish the rest of us.

Sun, 07/08/2012 - 12:41 | 2596372 Colonial Intent
Colonial Intent's picture

Those responsible for the problem cannot be trusted to provide the solution to the problem.

Sun, 07/08/2012 - 12:44 | 2596376 onebir
onebir's picture

Nice article, but I think there's an inconsistency in the last few paras: if monetary policy is currently ineffective in the Euro area, the Euro (currency and economy) will tank. That will cause major problems fof global trade, and the efficacy of US policy in the recent past will NOT allow the Fed to moderate its stimulus...

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