PIMCO Warns Global Central Banks Are Now Openly Defecting From The Status Quo's Prisoner's Dilemma

Tyler Durden's picture

Uncertainty. That has become the key word of the day, the month, and of 2011 in general. And while broad uncertainty has manifested itself most notably in the capital markets, it has a far more practical representation in labor markets, where the main reason why employers are not hiring more people, arguably the primary scourge of the Obama administration's record low approval rating, is due to corporate uncertainty about the future: about taxes, about government demanding its pound of flesh when the time comes, and about the economy in general. Ironically, as PIMCO speculates in its daily note authored by Tony Crescenzi, probably the primary driver of global uncertainty is the increasingly uncoordinated response by monetary policy authorities (read Central Banks) in which where before all had cooperated in the global game theory, now increasingly it is every printer for himself, as the default response turns to one of defection. And as everyone who has studied Game Theory knows, it is only the first defection that provides the biggest return, with each subsequent act generating far less benefits to the uncooperative actor, forcing even more uncooperative irrationality, and so on in a toxic spiral until outright belligerent action develops. For now said belligerence has begun to manifest itself in plain vanilla trade wars, such as that pointed out last night with the Chinese response to Europe's lack of response to its "bailout" overtures, and following up with the just announced complaint filed by the US against China on chicken prices. Naturally this is just the beginning. The real concern is that where trade wars end (which in turn begin when FX wars end), real ones start. When a year ago we first branded the Chairsatan as "genocidal" we were mostly joking. Perhaps it is time to reevaluate our definition, as it is far less comical under the current environment. Here is what Pimco has to say on the issue.

From PIMCO, Ya Gotta Believe, an extract:

Global Competitive Quantitative Easing

In March of 2009, central banks began a campaign against deteriorating financial conditions. When the Bank of England announced quantitative easing, the Federal Reserve and several other central banks, including the Bank of Japan and the European Central Bank, followed suit. In the 1930s, the U.K. abandoned the gold standard, allowing a devaluation of the pound, and several other countries followed with devaluations. They were known as competitive devaluations, since they sought to boost trade. In 2009, major developed economies experienced severe recessions for similar reasons – credit contraction – and so central banks acted in their own interest. Central banks followed each other in a competitive way, absent a coordinated response. And so quantitative easing was dubbed “competitive QE.”

During QEII, U.S. negative real rates together with uncertainty over the Eurozone debt crisis led to a flight out of the dollar and into emerging market currencies as well as perceived “safe havens” like the Swiss franc. Since the dollar remains the reserve currency, negative U.S. real rates present a choice for global central banks to accept or reject a deflationary impulse from real effective exchange rate appreciation. The choice has become more urgent as downward adjusted growth expectations resulting from fiscal austerity combined with financial market stress have heightened the risk of a liquidity trap.

Central banks could respond to a liquidity trap with tools to make their real rates and currencies as unattractive as possible. Recently, the Swiss National Bank did this by announcing an explicit floor on the Swiss franc. The Bank of Japan responded by expanding its asset purchase fund, while Japan’s Ministry of Finance assisted by unilaterally intervening in the Japanese yen. The G-7 released a communiqué advocating close consultation in regard to actions in exchange markets and appropriate cooperation. Next, the European Central Bank coordinated with the Fed, the Bank of Japan and the Swiss National Bank to offer three dollar liquidity auctions until year-end, but that is a stopgap and not a sign of grand cooperation.

In an environment where large fiscal adjustments are required, central banks rely on mechanisms that are effective. Indirectly through asset purchases or liquidity injections, central banks could competitively devalue their currencies. As competition intensifies, cooperation and coordination among global central banks could diminish and engender a timing dilemma for policy reversal. At the same time, decisions may become asymmetrical as central bank actions are not synchronized but rather self-centered. Both cases of Switzerland and Japan showed by targeting the currency in reaction to flight to safety and negative real interest rates, each central bank acted on its own in a non-cooperative manner, contrary to what the coordinated dollar liquidity action suggests.

Figure 2 depicts that along the distribution of the world’s average real policy rates, there is a very wide range of inflation outcomes. As a competitive process in central bank decisions continues, greater inflation volatility increases uncertainty in global economies and financial markets. The following sections in this commentary explore how individual central banks in developed and emerging markets are dealing with this uncertainty.

Read the full thing here.

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Cognitive Dissonance's picture



PIMCO Warns Global Central Banks Are Now Openly Defecting From The Status Quo's Prisoner's Dilemma

So.............does this mean they will continue to purchase Gold while claiming it's a useless relic that can't be eaten?

Just sayin'

trav7777's picture

think the SNB can get its 1500 tons back?

Ahmeexnal's picture

They'll take more than that. Actually, they already have it. Other people's gold, beneath Zürcher See. Always been that way.

Almost Solvent's picture

To help one explain this to those around who are more interested in college sports:


Syracuse and Pitt, basically founding members of the Big East, proactively bolted to the ACC while the getting was good and to not be left without a chair when the music stops.


Now, Texas & Oklahoma are likely next to bolt to greener pastures, leaving the remaining few to scramble for "safety"

Ahmeexnal's picture

All the while the elephant in the room is still unnoticed.
Russia will pick up the pieces of what's left of europe. And europe will still be in debt with the russians.

Biosci's picture

so...the TCU football team will have to fly to Russia?

Smiddywesson's picture

I agree Cog.  I think what was left out of this article is the cooperation and outright theatre that is going on.  If central banks were not cooperating, we would have $5k gold already rather than $200 moves down on no news, or depressed prices on currency intervention. 

Another way of looking at these selfish moves is that each participant, which is clearly still cooperating in the purchase and price suppression of gold, is taking turns in a controlled retreat.  First one country takes an action, then another takes its turn.  When viewed from the outside, it appears to be retaliation, when in fact it is a slow stalling retreat.  We know they want to kick the can.  We know they are cooperating in kicking the can, so why must we assume they are retaliating against each other?

I disagree with the premise.  There is another more logical alternative.  This is all show.  Do you really think the SNB acted alone?  I don't.  Do you really think Timmy went all the way to Europe to be spontaneously badmouthed, in the press, by finance ministers and central bankers.  These guys didn't get where they are by doing anything spontaneously.

SheepDog-One's picture

Exactly right, if ALL central banks were not cooperating, then we'd have gold at $5,000 or at least far higher than today, and countries would have imploded long ago in the Eurozone. This is all just theater for whats next, all the deer in the headlights looks from CB's and Bernank and politicians dont fool me 1 bit, they all know whats going on. Every bit of it theater, the 'ass chewing' by Euros on Geithner, the daily financial 'news' of the day bullshit...all just an elaborate show.

PaperWillBurn's picture

They compete for the flow of gold out of mines and refineries. They know if they start competing for the stock it will go parabolic and they'll quickly lose their grip. Grab the new gold but don't you dare try to purchase the old gold.


How long before they stop playing nice? How long before a country far down in the order decides to go after the existing stock? The game can change quickly.

Smiddywesson's picture

How long before they stop playing nice? How long before a country far down in the order decides to go after the existing stock? The game can change quickly.

Truer words have never been spoken.  The most likely answer to that question is when China is ready to crush the can, kicking time will be over, but there are so many other catalysts too.

PaperWillBurn's picture

China definitely has the ability but China (at least those in charge) benefit greatly from the current arrangment. I'd look for someone who's backed into a corner to set off the buying spree. Someone's who's status improves by a much higher POG.

Greece, Portugal, Italy?  Might be able to get past Greece, possibly even Portugal, but Italy won't bend over while sitting on 2400+ tonnes. Lets see how far this contagion will spread before someone chooses to drive up the value of their reserves.

Bicycle Repairman's picture

It's all kabuki.  The article is wrong.  All the CBs are cooperating.  And there is no advantage to being the first to stop cooperating.  That country will immediately be set upon by all the others, up to and including war. 

Gold doesn't skyrocket unless and until that is the agreed upon action.

thermroc's picture

So, would the war be kabuki? Or kabuki kabuki? It wouldn't actually be real would it?

Lucius Cornelius Sulla's picture

Gold is down because credit is imploding which is dragging down the prices of all assets (inclucing commodities).  Central Banks have been neutered by politics so outright soveriegn (and in the USA State then Federal GSE) debt defaults will start in Europe and spread across the globe.  Greece is the first crack in the debt pyramid which is doomed to fall regardless of what Central Banks do.  The primary concern of all governments, which is survival (and thus low borrowing rates), is in direct contradiction with an inflationary end-game.  It is only a matter of time before all will see how irrelevent the FED, ECB, PBOC and BOJ are.

LeonardoFibonacci's picture

No Doomsday today either!!! So i'm going back to bed

fonestar's picture

Silly plebeian, gold is for banksters!

Matto's picture

Steve keen winner or revere award in economics for correcting predicting the financial crisis and the reasons why (second was roubini) talking in NY this friday.


PeaBird's picture


So.............does this mean they will continue to purchase Gold while claiming it's a useless relic that can't be eaten?

Just sayin'

Look at what 'they' do, not what 'they' say...eh? http://www.gata.org/node/10458


all_in_now's picture

"Uncertainty". What uncertainty? "Stawlk" "market" is near all time high and going higher every day.

buzzsaw99's picture

belligerence won't stop the bernank.

SheepDog-One's picture

Global Central Banksters now openly defecting from their own 1 World Govt plan?

Uh oh, bitchez.

Oh regional Indian's picture

Unlikely SD1. Verrrrrry unlikely.

All as per plan. This is kaaaaaaaabooooooki we are witnessing.



trav7777's picture

break them up with your free magical energy!

You can't be this dumb...plans?  You think these idiots PLANNED for this type of economic catastrophe?

SheepDog-One's picture

Trav, youve got to be an IDIOT to NOT see this was all planned!

You REALLY think it was all just 'Oops, gee what happened? Huh guess we'll just have to print all currencies to oblivion because no way could anyone see this coming'?

Get with the program bub, it was all planned long ago.

You think they're IDIOTS to get where they are, in charge of the worlds banks? Give me a break man, take a few anti-retardation pills or something.

Cognitive Dissonance's picture


We need to explain to people that by "plan" we don't mean a tight script, but rather an overall agenda. Gentle but constant pressure is very effective when greed is the ruling emotion.

Smiddywesson's picture

The very concept of "retaliation" tacitly assumes that central bankers care about countries or sheeple.  Would a central banker endanger himself to take action against another central banker who threatened the welfare of his country or his citizens?


That was a good one.

Lucius Cornelius Sulla's picture

I think the Central Banks fear their respective Nation States who will pull the plug on them in a heart beat if it meant their survival.

SheepDog-One's picture

Yep, the only problem I see now with the slow but sure chip away at the stone method is theres probably not much time left at all. Like those videos of cliff houses in hurricanes...looks pretty stable untill suddenly the whole things gives way and plunges at freefall speed. Kind of like 9-11 when they 'pulled em' as Larry Silverstein said.

Smiddywesson's picture

Yes and when the whole house topples into the surf, what will they say?  Anybody?

We never saw it coming.

dark pools of soros's picture

I agree -  even when the wars start, the 'enemies' are usually still just the serfs vs the rulers yet the serfs battle each other instead


Bankers hate sovereign nations..  especially prospering ones  (ask Libya) 

WonderDawg's picture

I'm not an idiot, and I don't think this was all planned. I think you're giving TPTB too much credit. They might have had a plan, but it's out of control now. Try as they might, they can't control the markets forever, if they ever actually had "control". Influence, yes, but control? I'm still not convinced.

I think they're shitting their drawers right now. They aren't good enough actors to pull off this act of chaos. When you get right down to it, sovereign cooperation is fracturing in a scramble for self-preservation.

thetruth's picture

Underestimating the enemy is mistake number one.  This has been in place for a long time.  It's too late in the game to be making that mistake, sir.

SheepDog-One's picture

'Out of control'? Not a chance! It APPEARS out of control and chaotic, only proving THEY DID plan it....lets see whats the globalists motto? 'Ordo Ab Chao' Order out of chaos.

StychoKiller's picture

The dinosaurs also had order on the planet, for millions of years, then Mother Nature came to bat...

Au Shucks's picture

You don't have to be an idiot to not understand why this was planned.. you need only be a normal person who has not spent the energy to understand what is happening.  You're right in the sense that the PTB aren't happy with what is happening right now, but it is NOT because it is happening that makes them unhappy, it is that the timing is not what they planned exactly.  The pieces to the puzzle have been slowly assembled over time to create the conditions toward a single world currency and governance.  Not ever country supported this plan, but certainly the London-controlled countries have all played their role in the furtherance of the plan.  The countries who did not support the plan are those nations now who are suffering the most at the hands of the military industrial complex through the UN and London nations.  Those who are part of the plan are trying their damnedest to slow the collapse down to a controllable speed so moves can be made to turn the "crisis" into their long sought-after goal.  If this all sounds off the wall to you, again.. it is not because you are stupid.  However, if you now continue with your preconceived beliefs rather than see what is unfolding and go back to reanalyze your views, you do have the option of using the stupid label at that point.

WonderDawg's picture

I'm pretty normal in most regards, but not with regard to spending the energy to understand what is happening. I've read a number of books, articles, theories, etc. Included on the list is The Creature From Jekyll Island, Blackwater, Endgame, Crossing the Rubicon, to name a few. So to say that I haven't invested the time and curiousity to understand is inaccurate. But, like I said before, I'm not convinced that TPTB are in control. In fact, I believe that the Euro experiment is imploding, and this was definitely not part of the plan. I'm not doubting that they have a plan, just that it's not working out the way they drew it up.

thetruth's picture

Interesting point though - a desperate TPTB are likely much more dangerous than an in control TPTB.  Either way, there is some action around the corner.

Green Leader's picture

"I'm not convinced that TPTB are in control."

Yahweh is the one in total control.

You might want to add this instructional video, Mystery Babylon, to your education:





Smiddywesson's picture

Plans change over time, but TPTB don't.  It doesn't matter when this particular installment of "The Plan" came about to give TPTB exactly what they have craved all along.  I'll repeat your words for those that missed it:

 Those who are part of the plan are trying their damnedest to slow the collapse down to a controllable speed so moves can be made to turn the "crisis" into their long sought-after goal. 

Cognitive Dissonance's picture

You are confusing TPTB with politicians and other so called leadership. The owners of this world do not party in public.

StychoKiller's picture

Note to self:  Report CogDis to the paranoia police. :>D

ManufacturedOpinion's picture

Yes, Dawg - if you really believe that, you ARE an idiot.  And a fucking stoopid one at that.  And if you DON'T believe it you're just an asshole.

This shit has been planned for HUNDREDS OF YEARS.  Up to and including 3 world wars, all designed to take EVERYTHING from the people and leave the world to the Tribe.


WonderDawg's picture

You're a bit of a cunt, MO. You give the tin hat crowd a bad name. I suggest you go fuck yourself.

Soul Train's picture

Sheepdog seems to see it all as a long time conspiracy.

Of course, that was the Fed mandate since 1913.



Oh regional Indian's picture

Well Trav, with blinkered, mind-setted and bigoted people like you sitting as gatekeepers, can you see how well their "plan" is working? In a fair world, you would have had your teeth kicked out a long time ago and your fanatical clinging to a dead-end technological path would have been exposed for what it is, Status Quo propogation.

Think about that, you are a result of their plan. And you have kids....*shudder*


THIS is what this Exchange is about

Ahmeexnal's picture

ORI, I'm sure those kids ain't Trav's. Even his wife could not be that stupid. That would explain Trav's racist anger.

ManufacturedOpinion's picture

Jeezus Christ, ORI - are you going to be pumping another one of your lame articles in this forum again ??

Probably be pumping it all week, no?  You know, if your articles were any good you wouldn't HAVE to pump 'em up.

People, just ignore this crap by the Indian - not worth your time.

Hook Line and Sphincter's picture

As a juvenile delinquent I once planned for my crappy motorcycle to be stolen. My buddy took the parts he wanted and left the frame in a field. I ate sand when insurance didn't cover it.

But then again, I just might have lied about that story.

Actual intent is always hidden. Speculation upon the fruit that's been produced is all that remains.

Abitdodgie's picture

There is free energy , how do I know i've got one S.E.G