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"Marginal Utility" Of Central Bank Intervention Is Rapidly Diminishing

Tyler Durden's picture




 

Much has been written of the dramatic drop in the Debt/GDP multiplier, or Keynesian accelerator, over the last few years that shows the marginal utility of adding more debt produces less and less growth (and in fact can become a drag). More debt to solve too much debt seems put to bed as a solution except in the surreal world of central bankers and politicians. Well, with all the hoop-la today for the 'peek' over Dow 13000 and our discussion of the nominal versus real 'value' of the Dow as central banks of the world have printed $7tn into existence in the last few years, we thought an examination of the marginal utility of central bank printing would be useful. The depressing truth is that, using Gold as a proxy for central bank ebullience, the impact of implicit devaluation (or explicit printing) by central banks is having a smaller and smaller impact on stock market (asset) prices. Since the lows in March 2009, the impact of central bank intervention on the Dow has rapidly diminished from over 20 Dow points per $1 Gold move to only 2 Dow points per $1 Gold move in the last few months. What is dramatically clear is that investors are losing 'value' even as they see their brokerage statements rise and while Gas prices will inevitably slap reality into their faces, perhaps just as the Debt/GDP multiplier signaled the Keynesian Endgame, then the Gold/Dow multiplier signals the Currency-Wars Endgame - or alternatively, Central Banks will have to go exponential in their extreme experimentation to fulfill equity-holder's hopes and dreams as they approach their event horizon.

 

This chart plots the rolling rate of change of the Dow (in points) for each $1 shift in Gold. If we assume that Gold is a useful proxy for central bank exuberance and extreme experimentation (which seems defensible given this discussion and chart), then the rapidly diminishing scale of the oscillations clearly indicates that the impact of central bank money printing is decelerating dramatically.

This seems to suggest that in order to maintain the desired devaluation-inspired rise in asset prices,  Central Banks will have to go exponential to escape the linear and reflexive impacts of their peers and competitors in the central bank world - or perhaps we really are once again hitting the asymptote of Keynesian ridicule. We are sure the CBs of the world will invent a new mutually-assured-destruction Depression-inspired reason for the step-shift in balance sheet expansion required to fuel asset prices and in the meantime, we'll hold our gold. 

Perhaps a clearer analogy (inspired by Andy Y) is that central banks are approaching their event horizon and while one cannot see the Black Hole (inferring its position from the Hawking radiation spewing from it), perhaps a growing cacophony from Bernanke/Draghi spewing forth is the 'sign' that we are about to go over the edge.

Charts: Bloomberg

 

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Tue, 02/21/2012 - 17:10 | 2182221 molecool
molecool's picture

I would have expected a flat line a long time ago - but we seem to be reaching that point in about 12 months - give or take. Interesting times...

Tue, 02/21/2012 - 17:11 | 2182236 Future Tense
Future Tense's picture

If a credit event occurs on the Greek bailout then the central banks are going to have open season to double their recent $7 trillion in expansion that Tyler noted earlier because we are going to finally have the deflationary "correction."  Good discussion here on how the Greek bailout can be viewed as disarming a bomb:

http://www.ftense.com/2012/02/greece-bailout-do-not-trigger-bomb.html

Tue, 02/21/2012 - 17:12 | 2182248 molecool
Tue, 02/21/2012 - 17:17 | 2182271 Theta_Burn
Theta_Burn's picture

I once skied down a hill like that in Colorado....

Tue, 02/21/2012 - 17:30 | 2182328 Manthong
Manthong's picture

event horizon..

"priced in"

Tue, 02/21/2012 - 19:01 | 2182583 ACP
ACP's picture

Event Horizon yes, where gravity is so strong not even the Fed can escape.

Tue, 02/21/2012 - 19:44 | 2182692 mickeyman
mickeyman's picture

If you want to see Bernanke and the Event Horizon, you can read the Adventures of Captain Bernanke and the Black Hole of Negative Real Interest Rates.

 

 

Tue, 02/21/2012 - 18:25 | 2182492 falak pema
falak pema's picture

what happened at the bottom; your put conditions my call!

Wed, 02/22/2012 - 03:07 | 2183682 kurzdump
kurzdump's picture

Molecool, check out http://www.armfi.com/?p=243 for an updated delta gdp / delta debt chart.

Tue, 02/21/2012 - 17:13 | 2182249 Clueless Economist
Clueless Economist's picture

Well we are starved for good news..here goes:

Lloyd Blankfein Democrat/Israeli to be replaced by Gary Cohn Republican/Arab

Tue, 02/21/2012 - 17:45 | 2182379 Random_Robert
Random_Robert's picture

Dec 21, 2012 is when it flatlines....  /sarc

Tue, 02/21/2012 - 17:10 | 2182230 Roy Bush
Roy Bush's picture

It also might mean that gold is manipulated.

Tue, 02/21/2012 - 17:30 | 2182327 tmosley
tmosley's picture

Nah, man.  That's just...that's just...crazy.

Tue, 02/21/2012 - 17:34 | 2182344 Roy Bush
Roy Bush's picture

"If we assume that Gold is a useful proxy for central bank exuberance and extreme experimentation (which seems defensible given this discussion and chart)"

I wish this was the case but I'm not sure it is....Gold and other PM's should clearly be a lot higher in my estimation, and ZH has said this as well.  So, this article....I just don't know.  Doesn't seem to hold much water in my estimation.

Tue, 02/21/2012 - 19:45 | 2182698 BliptoP3
BliptoP3's picture

GDP is also manipulated upwards, which would tend to cancel golds downward manipulation in this case - Hard to tell though.  Best to stick to numbers that are as hard as possible, maybe oil consumption instead of GDP, and oil price instead of gold prices would give a more accurate picture.

Tue, 02/21/2012 - 17:11 | 2182234 redpill
redpill's picture

And by "utility" you mean phony horseshit goosing of global markets, of course.  Goes to show what central bankers think is useful.

Tue, 02/21/2012 - 17:12 | 2182238 rsnoble
rsnoble's picture

The edge? I've had one foot in the hole for the past 5 years thanks to this massive economic recovery. 

Tue, 02/21/2012 - 17:11 | 2182239 PicassoInActions
PicassoInActions's picture

jsut curious... Does any1 from fed reading or sending comments to your mail box?

Do they send any warning in protest?

 

Wed, 02/22/2012 - 12:03 | 2184991 Thamesford
Thamesford's picture

I think they have diversified and are selling cheap shoes and sports jersies - see spam comments lower down

Wed, 02/22/2012 - 06:52 | 2182245 Zero Govt
Zero Govt's picture

Blowjob Bens bubbles ain't what they used to be

...puff harder Ben, blow yourself out (up) why don't you

Tue, 02/21/2012 - 17:13 | 2182253 Theta_Burn
Theta_Burn's picture

Jan-09 to Jan-12 ?

Na, capital is just becoming more stream-lined and efficient /sarc

Tue, 02/21/2012 - 17:14 | 2182257 mktsrmanipulated
mktsrmanipulated's picture

just called cnbc to tell them how irresponsible they are and told them about the BBC interview report and they hung up on me....they dont want to air anything bad what a fucking joke...everyone should call

 

201 735 2622 ask for the news desk...the girls names was Brie...like the cheese....

Tue, 02/21/2012 - 17:15 | 2182261 Motorhead
Motorhead's picture

Charts, bitchez!

Tue, 02/21/2012 - 17:22 | 2182294 Zero Govt
Zero Govt's picture

it's a closing triangle about to shoot down.. right through Bubble Bens foot

'Ouch!'

Tue, 02/21/2012 - 17:16 | 2182266 a growing concern
a growing concern's picture

Giant wedge pattern, bitchez!!!  The only question is which side does it break to?

Tue, 02/21/2012 - 17:16 | 2182267 Dr. Richard Head
Dr. Richard Head's picture

Zerohedge makes me pull our my dictionary more often that I am willing to admit.  I am learning though, so I've got that going for me.

Tue, 02/21/2012 - 17:53 | 2182402 s2man
s2man's picture

Yeah.  I had to look up asymptote.

Tue, 02/21/2012 - 17:20 | 2182285 davhay
davhay's picture

I missed a 20 percent move listening to you all. Thanks for FUCKING NOTHING BITCHES

Tue, 02/21/2012 - 17:23 | 2182298 molecool
molecool's picture

LMAO :-)

Tue, 02/21/2012 - 17:26 | 2182310 molecool
molecool's picture

I sincerely hope you do not trade based on ZH articles - that would have not worked out very well in the past three years.

Wed, 02/22/2012 - 02:13 | 2183617 Motorhead
Motorhead's picture

Must not have been in gold then.  You weren't listening to Dick Bove now, were you?

Tue, 02/21/2012 - 17:22 | 2182289 Black Forest
Black Forest's picture

central banks are approaching their event horizon

I like this term which describes the world in seven words. Thanks.

 

Tue, 02/21/2012 - 17:29 | 2182321 chubbar
chubbar's picture

Cue false flag attack in 3.2.1....

Tue, 02/21/2012 - 21:59 | 2183081 WmMcK
WmMcK's picture

Black Hole Haiku:
event horizon;
beyond it we cannot see
but physics can go
- Helen Sedgwick

Tue, 02/21/2012 - 17:29 | 2182315 TheSilverJournal
TheSilverJournal's picture

The sooner the printing presses are rendered worthless and governments are stopped from stealing the resources of the world, the better.

TheSilverJournal.com

Tue, 02/21/2012 - 17:48 | 2182390 giddy
giddy's picture

...ummm...marginal utility... is that like having to change shampoo because it doesn't work after the first few washes... hate when that happens...

Tue, 02/21/2012 - 18:08 | 2182453 Martin W
Martin W's picture

So, so does that mean that QE no 5 and LTRO no 4 will be the last?

Tue, 02/21/2012 - 18:14 | 2182464 q99x2
q99x2's picture

The solution is the problem. The problem is the solution. The solution is. The problem is. The. The. T. Hey I just saw Ron Paul's face being thrown out of the event horizen.

Tue, 02/21/2012 - 18:18 | 2182478 Pairadimes
Pairadimes's picture

Kind of like the junkie whose tolerance for the drug continues to go up. That never ends well, either.

Tue, 02/21/2012 - 18:23 | 2182489 Quinvarius
Quinvarius's picture

They should concentrate on moving gold up so it can perform its task of backing the currency and countering debt. 

If they insist on sitting on gold, they will get shrinking asset prices and collapsing debt deflation until the money supply is backed by gold at a low price.  If they allow gold to rise until the dollar value of our gold reserve matches our money supply and debt, everything will stabilize at higher prices.  The idea that paper money exists outside of its gold backing is a fantasy I am tired of watching morons try to push on the world.  Messing with gold prices destroys the currency and that destroys the economy.  50 years of proof show we have been in decline since we inflated for war, then went off the gold standard, then attempted to monkey with derivatives and interventions to control prices and steer the economy.  The Treasury and the Fed took the hard way and failed miserably.  They have wrecked this country because they want paper currency to serve themselves instead of hard money to serve the economy.

Tue, 02/21/2012 - 19:06 | 2182593 Swain
Swain's picture

Ah, references to Hawking radiation ...

How many central bankers even know Newtonian physics?

Let alone that Sir Isaac once was a central banker.

In Newton's days, the punishment for debasing the money supply was hanging. 

How about reinstating that statute? 

Wed, 02/22/2012 - 09:40 | 2184329 TheFourthStooge-ing
TheFourthStooge-ing's picture

Swain said:

How many central bankers even know Newtonian physics?

Let alone that Sir Isaac once was a central banker.

Newton, when tasked with coming up with a way to detect and thwart the shaving of silver from the edges of coins, solved this problem by his invention of the reeded edge coin. Technically, there has been no good reason for American dimes and quarters to have reeded edges since 1965.

In Newton's days, the punishment for debasing the money supply was hanging. 

How about reinstating that statute?

Agreed. Americans would be well served by the reinstatement of the Coinage Act of 1792 for that very reason, as well as for the design of the coins and free coinage of gold and silver.

 

Tue, 02/21/2012 - 22:36 | 2183155 chump666
chump666's picture

Wow that is a f*cking excellent post by ZH.

Nothing to add.  Excellent.

Tue, 02/21/2012 - 22:52 | 2183182 Mamzer Ben Zonah
Mamzer Ben Zonah's picture

Lots of kinds of event horizon:

In general relativity, an event horizon is a boundary in spacetime beyond which events cannot affect an outside observer. In layman's terms it is defined as "the point of no return" i.e. the point at which the gravitational pull becomes so great as to make escape impossible. The most common case of an event horizon is that surrounding a black hole. Light emitted from beyond the horizon can never reach the observer. Likewise, any object approaching the horizon from the observer's side appears to slow down and never quite pass through the horizon, with its image becoming more and more redshifted as time elapses. The traveling object, however, experiences no strange effects and does, in fact, pass through the horizon in a finite amount of proper time.

More specific types of horizon include the related but distinct absolute and apparent horizons found around a black hole. Still other distinct notions include the Cauchy and Killing horizon; the photon spheres and ergospheres of the Kerr solution; particle and cosmological horizons relevant to cosmology; and isolated and dynamical horizons important in current black hole research.

 

Learn more at

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

Wed, 02/22/2012 - 03:26 | 2183734 sikefeier0728
sikefeier0728's picture

 

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Wed, 02/22/2012 - 12:01 | 2184981 Thamesford
Thamesford's picture

Ben? Is that you? Is this your back-up plan B when you lose your job at the Fed?

Wed, 02/22/2012 - 06:50 | 2184118 onebir
onebir's picture

"This chart plots the rolling rate of change of the Dow (in points) for each $1 shift in Gold."
There are two lines in the chart. A rubric would be handy.

Wed, 02/22/2012 - 11:53 | 2184956 Thamesford
Thamesford's picture

The black hole analogy is a good one. As the economy approaches the event horizon, time feels normal but from the perspective of the central bankers time is becoming ever elongated and the calamity is put off...

So the relatavistic view from the starship "Printing Press" is great but that doesn't help the rest of us being stretched to infinite lengths!

Wed, 02/22/2012 - 17:11 | 2186332 WhiteNight123129
WhiteNight123129's picture

Bernanke is demonetizing the US dollar but he does NOT know he is doing that.

Do NOT follow this link or you will be banned from the site!