The Era Of Independent Central Banks Is Over

Tyler Durden's picture




 

Federal debt has expanded by $9.5 trillion - from $5.7 trillion in 2000 to $15.2 trillion at the end of last year and, as Neal Soss of Credit Suisse notes, is still growing over $1 trillion a year (or $5 billion per day). The state of fiscal sustainability, as explained in this compendium of slides, is perilous, but as Soss notes - interest expense did not go up because interest rates fell faster than debt went up. Looking ahead, he notes that political choice theory suggests that taxes can go up, but not a lot (even as the change-maker-in-chief presents his case) and at the same time an unprecedented aging (demographic) shock limits the ability to control expenditures. None of this is news to readers but the financial implication is critical: interest rates must be kept as low as possible to avoid explosive debt dynamics. As Soss concludes therefore, and something we have been clear about for a long time, the era of independent central banks is closing as those institutions revert to their foundational role as fiscal agents of the state.

The Fallacy Of US Fiscal Sustainability In 11 Quick and Easy Charts...

The Evolution of the Federal Budget in the 2000s

US Debt That Matters

US Interest Expense Outlays

Which Interest Rate To Use?

Contribution to Growth in Federal Outlays in the 2000s

US Federal Revenues to GDP (%)

US Federal Outlays to GDP (%)

US Federal Deficit to GDP (%)

Federal Debt Interest Expense

US Youth Dependency Ratio

US Old Age Dependency Ratio

Not a pretty picture for shared sacrifice, budgets, and the expectation of more QE as inevitable.

Source: Credit Suisse

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Tue, 04/10/2012 - 17:35 | 2332897 SilverIsKing
SilverIsKing's picture

All this debt growth with no QE.  Makes one wonder.  Hmmmmmm....

Tue, 04/10/2012 - 17:38 | 2332898 Colombian Gringo
Colombian Gringo's picture

There is nothing to wonder about, nearly all government/bankster statistics are faked, fudged, fiddled or are outright fraud.

Tue, 04/10/2012 - 17:48 | 2332929 BoNeSxxx
BoNeSxxx's picture

Long gold and hard assets...

Oh, yeah, and the 4 B's.

However, if interest rates are held artificially low during an extended inflationary period, would it not make sense to purchase homes (lots of them) and rent them out?  Fixed costs over 30 years and rising rents monthly... seems like a no-brainer even Robo-Trader could understand.

Tue, 04/10/2012 - 18:00 | 2332958 MillionDollarBonus_
MillionDollarBonus_'s picture

"The Era of Independent Central Banks is Over"

I certainly hope not. The Federal Reserve bank of the United States of America was SPECIFICALLY set up to be INDEPENDENT. This means that they are allowed to pursue their dual mandate for maximum employment and price stability WITHOUT political meddling from upstarts like Ron Paul and other insolent members of congress. If Ron Paul becomes president and the economy takes a turn for the worst, then DON'T SAY I DIDN'T WARN YOU.

Tue, 04/10/2012 - 18:04 | 2332964 spinone
spinone's picture

you must work in advertising or as a political consultant in your real job.

Tue, 04/10/2012 - 18:07 | 2332972 TheFourthStooge-ing
TheFourthStooge-ing's picture

"Nobody could have seen this coming," said Any Economist, PhD, when asked about the economy's sudden increase in up-fuckery.

"Based on our system of models, the complexity of which compels acceptance, this is not one of the possible outcomes," added Ivory League, quasi-Nobel Sveriges Riksbank Participation Trophy in Economics laureate.

 

Tue, 04/10/2012 - 19:09 | 2333078 NewThor
NewThor's picture

TYLER DURDEN the Xth,

Could you please write a post based on the Timewave Zero chart overlayed against the Dow Jones chart from 2006 through the end of 2012?

If computers run the markets, maybe computers can see the future.

It's uncanny how the two charts are in lock step.

According to Timewave Zero, you wanted to SHORT all on April 5th, 2012.

Convert your shorts into cash on July 1st, 2012.

Then, that day take your cash and buy more food, medicine, toilet paper, more bullets, cigarettes, and such.

Please look at this chart....

http://2012rising.com/article/timewave-zero-peak-in-novelty-11-11-2010-i-ching-dna-fractal-reality

Tue, 04/10/2012 - 20:17 | 2333236 economics9698
economics9698's picture

"WITHOUT political meddling from upstarts like Ron Paul and other insolent members of congress."

LMAO. 

Wed, 04/11/2012 - 23:35 | 2336800 MeelionDollerBogus
MeelionDollerBogus's picture

"If computers run the markets, maybe computers can see the future.

It's uncanny how the two charts are in lock step."

There is no doubt that some can.

The key is to model fluid dynamics, to model pareto evolutionary models & to have enough data to work with.

Tue, 04/10/2012 - 20:15 | 2333231 Elmer Fudd
Elmer Fudd's picture

Maybe MDBB is a script writer for the puppets at MSNBC?

Wed, 04/11/2012 - 07:22 | 2333950 Amagnonx
Amagnonx's picture

The warning against centralization is well taken - which is why a rational approach is not a return to the gold standard, but rather a return to privately issued money - silver, gold, or vouchers that can be redeemed for goods.

 

For example large retailers, Walmarts etc and gasoline distributors would find a ready market for vouchers they issued.  Farmers could forward sell their goods for either gold or silver - or certificates representing those things.  Banks large and small could easily issue their own certificates and find acceptance - and values of those certificates and vouchers would fluctuate freely based on real or imagined data.  Currency crisis would no doubt arise from time to time, but would have smaller and localized impacts.

Wed, 04/11/2012 - 23:32 | 2336797 MeelionDollerBogus
MeelionDollerBogus's picture

Despite the MF global non-delivery of contracts stolen by JPM, farmers still have an option for the future: farm shares. Like a farmer's market but for delivery to customers, the money is paid up front & the yield is divvied up when ready. The only risk is if the farmer sets the price too low to repeat the process, or for the consumer to pay a higher price only to find out that their food was not in such short supply at that price-level - and you "get what you get". I think it's a great way to support farmers & get good food.

It ain't no futures-contract arbitrage market with margin, leverage & shorting but.... the only counter-party risk is that the farmer takes your money & you get nothing. Could happen but where's the farmer gonna hide? Can't hide a farm so people would come knocking if that did happen.

I trust Farmer Brown way more than MF Global or JP Morgan.

Peace 'n' chitlin grease, Farmer

Tue, 04/10/2012 - 18:35 | 2333029 asteroids
asteroids's picture

I actually enjoy MDB's sarcasm. Keep it up. But, when the revolution happens, people may coming looking for YOU. DON'T SAY I DIDN'T WARN YOU.

Tue, 04/10/2012 - 18:47 | 2333046 rotagen
rotagen's picture

"This means that they are allowed to pursue their dual mandate for maximum employment and price stability WITHOUT political meddling from upstarts like Ron Paul and other insolent members of congress"

..... There are comedians among us....Fed+stability?...no political meddling?...Paul an upstart?....Job creation?....Have you wandered into an alternate universe....Please ....report...universal...coordinates....calling...from....milky...way...galaxy....terra....forma....ursa....minor...???

Tue, 04/10/2012 - 18:58 | 2333062 sessinpo
sessinpo's picture

MillionDollarBonus_                          2332958

I certainly hope not. The Federal Reserve bank of the United States of America was SPECIFICALLY set up to be INDEPENDENT. This means that they are allowed to pursue their dual mandate for maximum employment and price stability WITHOUT political meddling from upstarts like Ron Paul and other insolent members of congress. If Ron Paul becomes president and the economy takes a turn for the worst, then DON'T SAY I DIDN'T WARN YOU.

 

Comment

Central banking isn't dead. Just this particular institution in this form is in trouble. As long as there is any single medium of exchange, even gold, there will be those that position themselves and get into positions to control that medium. That is something I don't think many have thought of. For example, let's say that we go back to a currency backed by PMs. Can one not see that certain peoples will manipulate PMs to their advantage? Centralization happens because people want a group to oversee the process and to hopefully make that process fair. But has history has shown, those overseeing the process are or become the foxs guarding the hen house.

As for you comment on the FRB being independent. There are always pros and cons to each situation. Yes, the FRB is supposedly independent but independent to whom? Clearly we can see that any institution of power is easily politisized and thus maybe not so independent. Also I am sure you are aware that the FRB is comprised of banks. The large financial institutions control the FRB. Do we see any conflict of interest especially after seeing many banks being bailed out - thus the term TBTF?

No one has come up with a solution to this. It is a macro problem yet to be tackled. BTW, Ron Paul should be giving props for his attention given to the FRB. Why shouldn't every institution that has such power not be able to face scrutiny unless there is something to hide. I am hopeful that his son Rand till take Ron's lead. Despite rediculous bashing I have received for not supporting Ron for president, I support the majority of his ideas. Ron just went about it the wrong way and his supporters did Rons' campaign a huge disservice.

Tue, 04/10/2012 - 19:27 | 2333130 nmewn
nmewn's picture

"This means that they are allowed to pursue their dual mandate for maximum employment and price stability WITHOUT political meddling from upstarts like Ron Paul and other insolent members of congress."

lol...

"Harry, I have a gift."

Tue, 04/10/2012 - 20:58 | 2333291 cranky-old-geezer
cranky-old-geezer's picture

 

 

The Federal Reserve bank of the United States of America was SPECIFICALLY set up to be INDEPENDENT. This means that they are allowed to pursue their dual mandate for maximum employment and price stability...

C'mon MDB, you're starting to sound a little too koolaidish even for sattire.

What's next?  "Obama needs more time to bring hope and change."?  Something blatantly stupid like that?

I believe whoever the next president is will preside over the collapse of the dollar then the collapse of America.  Obama, Paul, Romney, it doesn't matter, unsustainable debt doesn't care who is president.

When the rest of the world decides enough is enough and dumps the dollar, it and your beloved Fed will collapse ...followed soon after by America's collapse.

You and your ilk consistenly ignore what's happening to the currency, how your beloved Fed is looting wealth from every American by running the presses. 

Fed's mandate?  Price stability?  When prices have doubled in 4 yrs?  Doesn't look like your beloved Fed is very effective on that mandate.   And full employment?  With record numbers of Americans out of work and on food stamps?  Nope, your beloved Fed doesn't seem to be doing a good job on that mandate either.  Pretty miserable actually.

But you koolaid drinkers ignore facts like these, and go on living in your fantasy world of platitudes and promises, ignoring performance.

Tue, 04/10/2012 - 21:13 | 2333314 Ned Zeppelin
Ned Zeppelin's picture

If you did not already know or understand, MDB is a consummate satirist who is worthy only of our praise and adulation.  His posts are poetry.

Tue, 04/10/2012 - 22:15 | 2333412 Atomizer
Atomizer's picture

Without flagging the satirist ZH work, our Mao driven administration may seek MDB for IRS poetry back taxes. Tell him/her to close post with [/sarc].

Tue, 04/10/2012 - 22:38 | 2333449 MeelionDollerBogus
MeelionDollerBogus's picture

when has the Fed sought either of these mandates? Nothing the Fed can do can report accurately on employment (as honesty is dangerous) and nothing can spur employment (as monetary policy has never created jobs or innovation). Certainly price stability has been destroyed instead of sought, inflation has risen out of control instead of being held at a "stable 2-4%" and certainly the only real stable inflation would be with no currency issuance and -2 to +2 % from natural business cycles.

The fed got it all wrong. Then again, lying & stealing was its purpose from the beginning.

The very core of the Fed is political meddling as bribes are paid from printed money by the JP Morgan & other share-holders of the Fed. Being independent from law is a bad thing & the Fed is that "indpendent" party.

A Ron Paul presidency promises to return to law & order & destroy the mafia federal reserve. Thank goodness.

Tue, 04/10/2012 - 18:10 | 2332960 LowProfile
LowProfile's picture

 

if interest rates are held artificially low during an extended inflationary period, would it not make sense to purchase homes (lots of them) and rent them out?  Fixed costs over 30 years and rising rents monthly... seems like a no-brainer even Robo-Trader could understand.

Yeah, as long as everybody keeps working (so they can pay your hypothetical rising rent) and the housing supply stays stable (none of those foreclosures come on the market).

Renting, like owning, is a function of the prevailing wage.  If that isn't going up, neither is rent, or housing prices.

Gonna be a lot of surprised "capitalists" out there.

Tue, 04/10/2012 - 19:26 | 2333129 PersonalRespons...
PersonalResponsibility's picture

Don't forget about property taxes...

Tue, 04/10/2012 - 19:53 | 2333182 Will To Live
Will To Live's picture

When your "Tenants" lose thier job and see you as the enemy.  They might trash your property as you try to "evict" them, with the help of your "friend" the Lawyer.  It "could" happen.

Tue, 04/10/2012 - 20:39 | 2333271 yogibear
yogibear's picture

Knew of a property manager trying to collect that was shot on the face by the tenant. Both loose. One goes to prison the other goes to the morgue.  Rental income doesn't matter much if your dead. When people get desperate they go crazy.

Wed, 04/11/2012 - 23:26 | 2336786 MeelionDollerBogus
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Yup. When people lose everything and have nothing left to lose, they lose it - obviously the often repeated / repeating Gerald Celente

Tue, 04/10/2012 - 18:01 | 2332961 SeverinSlade
SeverinSlade's picture

However, with rising rents, comes rising property taxes.  Thanks to those nice property taxes, you never own those homes.

Tue, 04/10/2012 - 18:08 | 2332971 BoNeSxxx
BoNeSxxx's picture

Thanks for reminding me... I was almost happy there for a minute...

Tue, 04/10/2012 - 18:41 | 2333035 Manthong
Manthong's picture

“role as fiscal agents of the state”

I understand the sentiment but maybe the situation is better described as the state is an asset of the banks  and functions to provide risk mitigation and debt relief.

Tue, 04/10/2012 - 19:04 | 2333072 SeverinSlade
SeverinSlade's picture

Yeah, sorry to blow that idea for you.

Buying homes at this point, even if you're able to pay in cash, is nothing but buying a depreciating asset (relative to something like gold) that accumulates an inflation adjusted tax liability.  Said simply, as the economy sinks further and further, you'll be wholly dependent on a renter to cover your tax liability...And in a inflationary/hyper-inflationary environment, wages are extremely likely to stagnate, meaning you're pretty much screwed.

Tue, 04/10/2012 - 20:15 | 2333232 riphowardkatz
riphowardkatz's picture

property tax argument doesn't really hold water. they can tax the heck of gold just as easily. 

raising property taxes affects rents or it affects how maintained the homes being rented are... rent controls are very possible. 

taxes are the last thing the government like this wants. raising taxes is rehtoric. they cannot pay off what they want with taxes it must be done with inflation. 

Tue, 04/10/2012 - 21:22 | 2333334 HurricaneSeason
HurricaneSeason's picture

Gold is only taxed when sold. It could travel multiple generations. It's not hard to find a house and property tax it every year. The federal government and state governments will cut the funding to cities and counties before they will cut their own budgets. Property taxes should go up significantly enough to significantly lower the value of the property they are taxing and they'll have to raise property taxes again.

Tue, 04/10/2012 - 22:14 | 2333410 WmMcK
WmMcK's picture

PM's are only taxed when sold on the white market.

I'd eat them first, on a boat, of course.

Wed, 04/11/2012 - 03:04 | 2333801 MrPalladium
MrPalladium's picture

"property tax argument doesn't really hold water. they can tax the heck of gold just as easily. "

No they can't!!

Wed, 04/11/2012 - 23:46 | 2336813 TruthInSunshine
TruthInSunshine's picture

The property tax argument holds quite a bit of water, actually.

Everyone has different circumstances, and there is a lifestyle element that's hard to quantify that relates to owning one's abode.

But whether one owns that abode 'free & clear' or via a mortgage note, one will always have to pay rent in the form of property taxes to the true owner (the local assessor).

Although I can make a compelling argument that the obligation to pay property taxes on one's primary residence (or any other land) is a massive scam, in some areas, the property taxes are relatively low as a % of the asset, while taxes are insanely high as a % in other areas. I know people paying $40,000 a year on homes that are assessed at 1.2 million (that can't be sold for anything close to that; think in terms of $800k if luck struck) that have lost 50% of their 'paper' value since 2006. These are enclaves along Lake Michigan in the area north of Chicago, Illinois.

The kicker is that the property tax will always have to be paid, even on a 'paid off in full' home, lest the home can be seized. How does that translate into 'free and full ownership of property' or anything remotely approaching 'private property rights' in the notional terms Americans have been brainwashed into believing exists in the U.S.?

And then there's that whole element of not knowing how much property taxes will be increase over time, as that matter is decided by an insulated and benevolent (/sarc) technocrat who works in the assessor's office, and whose sole discretion rules the day unless one takes the initiative to run through an intentionally red tape laden obstacle course in order to obtain even relatively small relief (and that may only come after filing a civil lawsuit at the end of the day).

The requirement to forever pay property taxes on one's primary residence, or farmland, is so offensive to the notion of private property rights that it's incredible to see how few people even think about it in a nation that bills itself as 'free,' democratic,' 'capitalistic,' or anything else that conjures up notions of liberty from government meddling.

Tue, 04/10/2012 - 21:18 | 2333327 Marginal Call
Marginal Call's picture

If you're able to pay in cash buying property right now is an excellent move.  But it has to be specific property, IOW arable land with local water supply-and hopefully not too many neighbors.

 

Need land to be independant.

Tue, 04/10/2012 - 18:26 | 2333007 Uber Vandal
Uber Vandal's picture

@BoNeSxxx

The other problems with rental properties are:

How much will your locality raise property taxes?

Will your tenants actually pay you, and leave the property in the same state as their first day renting?

How do you plan to raise rent when income for most people has been at best, flat?

Will your locality require you to meet all building codes?

If you tenant just up an leaves one day, how long before you can fill the vacancy?

Are you handy at fixing things, or do you have the cash to pay plumbers, electricians, carpenters, etc?

Does your locality permit you to evict your tenant, or do they get to live there for months at your expense while damaging your property because they can?

Sure you can take the tenants to court over some of the issues above, even win, but will they pay that judgement if they were not able to pay you in the first place?

My friend who was a land lord is much happier since he got out of it.

Tue, 04/10/2012 - 20:20 | 2333241 riphowardkatz
riphowardkatz's picture

yes making money is still work and often when people are done working they feel some joy.

yes income producing investments often require maintenance otherwise they are speculations. 

yes laws affect renting just like they affect apple or gm or gold for that matter.

yes there are taxes with renting or selling a property just like there is with gold or apple or gm.

your list is basically a list of costs associated with any investment opportunity.

It also doesnt list the benefits with the major one being a short of the dollar. 

Tue, 04/10/2012 - 19:52 | 2333176 youngman
youngman's picture

Don´t forget ...the government will just impose rent controls and higher taxes on rental incomes...it won´t be that easy..

Wed, 04/11/2012 - 14:33 | 2335308 PayneNita
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Tue, 04/10/2012 - 17:38 | 2332903 SHEEPFUKKER
SHEEPFUKKER's picture

END THE FED

Tue, 04/10/2012 - 17:58 | 2332953 Sudden Debt
Sudden Debt's picture

YES... IT'S TIME FOR A NEW LOGO....

Tue, 04/10/2012 - 18:08 | 2332973 BKbroiler
BKbroiler's picture

ha

Tue, 04/10/2012 - 18:15 | 2332982 SheepDog-One
SheepDog-One's picture

They've already got their new logo, 'World Central Bank'. Soon.

Tue, 04/10/2012 - 22:35 | 2333446 palmereldritch
palmereldritch's picture

Where are my detonators?!

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

Tue, 04/10/2012 - 17:39 | 2332905 NotApplicable
NotApplicable's picture

Independent? Of what? Certainly not the Rothschilds.

Tue, 04/10/2012 - 17:53 | 2332942 bank guy in Brussels
bank guy in Brussels's picture

Yes, 'Independent of what?' -

That's what I thought when I saw this article title. You mean those central bank guys were actually independent once? Weren't beholden to a national or international bankster community? How did we all miss it? Ha!

 

Tue, 04/10/2012 - 18:27 | 2333014 Cursive
Cursive's picture

@Not Applicable

Exactly. The question here is who is in charge. The Credit Suisse guy tries to perpetuate the myth that the bankers should not be beholden to politicians. In reality, the Creature from Jekyl Island is pulling all of the muppet's strings. I'd like to declare freedom from our banking overlords.

Tue, 04/10/2012 - 17:39 | 2332907 Snakeeyes
Snakeeyes's picture

Interesting. I spoke today at Brookings with Ed DeMarco. http://www.c-span.org/Events/C-SPAN-Event/10737429760/

Someone from the Chinese Embassy approached me about some debt deal between China and the Obama Administration.

WTF?

I had to run to Fox News for an interview. What was this guy talking about? 

http://confoundedinterest.wordpress.com/2012/04/10/fhfas-demarco-no-trial-principal-reduction-yet/

Tue, 04/10/2012 - 17:47 | 2332924 bank guy in Brussels
bank guy in Brussels's picture

Bruce Krasting on ZeroHedge has been covering Ed DeMarco quite sharply for several years now - lots of articles. Check the search box.

Tue, 04/10/2012 - 17:41 | 2332909 Paul Atreides
Paul Atreides's picture

It's too bad we couldn't just force governments globally to raise the interest rates a couple points. The whole thing would implode, we could jail the banking cabal, we could get back to honest commodity backed money and a 'real' economy.

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