Will Central Bankers Be The Next Unchosen People?

Tyler Durden's picture

In his latest piece on popular delusions, SocGen's Dylan Grice conducts a much needed advance thought experiment looking at two specific things: on one hand he isolates the next inevitable social tension: that between "everyone" and the central bankers. Because if there is one specific reason why OccupyX never truly got off the ground is that deep down, the population knows that while bankers are to be despised for their "contributions" to society, they would never have the opportunity to do what they do absent the enabling stance of the "democratically" elected politicians, and more importantly, the deeds of those few academics stuck in a dark room, who daily decide the nominal fate of the world courtesy of money printing. Which means that in the inevitable progression of "marginalizing-then-brutalizing", when society finally cuts through all the noise and focuses on the one source of all that is wrong in the world, it will not be those residing at 200 West, but the tenants at the Marriner Eccles building: "Politicians can and will take back what they have previously given if and when it is deemed in their interests to do so. One way they do this is by using the time-tested political strategy known as “marginalise-then-brutalise”. Politicians start by identifying the obstacle to their objectives. For a government short of funds the objective is to raise more funds, and the obstacle is any group/sector which has them." Thus Mugabe “marginalised then brutalised” white farmers, while Hugo Chavez set his sights on private sector “profiteers” … for Hitler it was the Jews, for Philip IV of France it was the Knights Templar, for Diocletian it was the Christians, etc. How long before it is the central banks?" How long indeed? And whether it is with or without political prodding, once the central planning experiment fails, as it will, we would certainly not want to be in Bernanke's shoes...

As for the second part, Grice looks at the proverbial canary in the coalmine - Japan, where central banker tinkering is about to take the country to the next level in authoritarian tinkering, with disastrous results: "The notion that central banks are in control of events is a myth. It’s the other way around. Japan’s addiction to public sector spending is way beyond the boundaries of remedial ‘austerity’. Political pressure on the BoJ to crank the printing press into top gear will become irresistible. We see no alternative...the explosion in Japan’s debt/GDP ratio in the coming years is likely to make that seen in the past decade seem like a minor blip."

Back in May 2011 we first noted that following years of deflation, the only option before Japan is to do more of what it has done before, namely print. Sure enough, after a long delay, it made a "surprising" announcement doing just that.

Here is Grice's take:

The BoJ’s move to print money under political duress shows that in extremis there is no such thing as an independent central bank. Politicians can and will take back what they have previously given if and when it is deemed in their interests to do so.

Unfortunately for the central banks, long since having "betrayed" their independent mandate or two, this means that they themselves are about to be betrayed when the biggest experiment in central planning starts unwinding.

One way they do this is by using the time-tested political strategy known as “marginalise-then-brutalise”. Politicians start by identifying the obstacle to their objectives. For a government short of funds the objective is to raise more funds, and the obstacle is any group/sector which has them. The first step is to politically isolate the target, often by creating popular support for the idea that the target group/sector is to blame for whatever malaise is gripping the country. Step two proceeds when the target has been suitably emasculated and shorn of all defence against even the most brutal attack.

 

As Machiavelli observed five hundred years ago, “Men are so simple of mind, and so much dominated by their immediate needs, that a deceitful man will always find plenty who are ready to be deceived.” Thus Mugabe “marginalised then brutalised” white farmers, while Hugo Chavez set his sights on private sector “profiteers” … for Hitler it was the Jews, for Philip IV of France it was the Knights Templar, for Diocletian it was the Christians, etc.

 

How long before it is the central banks? How long before they’re being blamed for not doing enough to check the spike in government bond yields threatening the economy and jobs (even if that spike is caused by wayward government finances)? How long before the populist anger today directed against bankers is directed towards central banks for something like paying too much attention to inflation when x million people are out of work. Economists will provide camouflage for such populism. The cure will be worse than the disease, they will say.

Re-read the above as many as times as needed just so in a year or two when populist vigilanteeism breaks through the heavily guaraded barricades at Marriner Eccles and Liberty 33 and demands blood, and the media says that "nobody could have possibly foreseen this", one will be able to say wrong - it was foreseen long, long ago. But alas, as Grice says, the cost of fixing a broken system is too high for the high shamans of the lie to admit they were wrong all along, and instead will take the entire system to the point of breaking and beyond, which is where we are now.

So where should one look for the next steps? Why japan of course.

...Japan is the leading indicator. Today the BoJ is increasingly seen as a part of the problem. It’s not trying hard enough to boost economic growth, say the critics. It’s fighting the wrong battle, they add. One hundred and forty Japanese parliamentarians from across the party spectrum have formed an “anti-deflation league” to actively lobby it into more aggressive action and the effort seems to have worked. Despite protestations of the folly of such a policy only a few months ago, the BoJ has now upped its “asset purchase” scheme to something like 25% of expected 2012 JGB issuance.

 

At the regular BoE press conferences, Sir Mervyn King frequently defends the BoE’s actions in terms of its remit. The logical implication is that if the remit changes (e.g. they are to target a 5% inflation rate), so would its actions. Indeed, how could it be otherwise? But the logic of that is that there is no such thing as a truly independent central bank. Or if you like, central banks are ultimately constrained by the will of politicians. And if politicians really want their central bank to do something, the central bank will have no choice but to do it. In recent decades politicians have asked very little of their central banks, who in any case have been happy to run with excessively loose policy. But with the economy, or at least, government balance sheets, now in tatters, politicians’ demands are going to grow. And if these demands are not met, central banks will be marginalised then brutalised. I believe it’s already happening in Japan [where] the fiscal situation is so desperate the politicians there will soon really need the BoJ to start buying its bonds.

Don't worry - Kyle Bass is right, and the situation in Japan is indeed unsustainable.

The first chart above shows that Japan should be running a primary surplus of around 3% of GDP to prevent its debt/GDP ratio rising further. Note that this is a generous estimate because I’m using trend GDP growth to estimate revenue growth potential, and this is considerably higher than trend tax revenue growth, which has been falling much more rapidly over the same period. The current primary balance is around 7% in deficit. That means fiscal correction required is 10% of GDP.

 

That’s roughly the size of the adjustment Greece is expected to make by the troika, but by no one else because it’s beyond the boundaries of political feasibility. If Greece does manage to somehow pull this off it will still have a debt/GDP ratio of 120%, which the IMF has arbitrarily declared to be the ratio which is “sustainable” (Veneroso suspects this was done to make Italy look good, and we think he’s right). If Japan was to pull off similar heroics, its reward would be debt/GDP stabilisation at current levels of around 200%.

 

But anyway, there is currently little sign of any such appetite. The following chart shows the fiscal correction required to stabilise debt/GDP in trillions of yen (10% of GDP is around ¥50 trillion). Total non-discretionary expenditure is just over ¥50 trillion. It’s a staggering amount of money to find, just to stop your ca.200% debt/GDP ratio going higher. The proposed doubling of the consumption tax is intended to be phased in by 2015. Even if this is  actually passed, and there are no second order effects on other parts of the budget, the measure is likely to raise only ¥10 trillion p.a. It’s a bit like crashing into a wall at 180mph rather than 200mph.

But the biggest catalyst by far? The much anticipated shift in demographics has happened, and the public pension fund is now no longer buying Japanese Government Bonds.

...And as the fund becomes a net seller, the BoJ has upped its “asset purchases”, right on cue and under political pressure. That may just be a coincidence …. or it might be the first step on the long road to an inflation crisis. On existing policies and at current parameters, the explosion in Japan’s debt/GDP ratio in the coming years is likely to make that seen in the past decade seem like a minor blip. I for one bet the BoJ ups its purchases far more from here.

 

We for two agree, and since the chart above can only be described as exponential, as is the entire consolidated global central bank balance sheet, and since in a world of finite resources, exponential means unsustainable, the can kicking will soon end. First slowly, then very fast.

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markmotive's picture

According to Jim Rogers, banking and finance is where the C+ business grads will go in the future.

 

With the backlash against bankers worldwide (and maybe even eventual salary stagnation), who else would want to join such a gong show?

 

Jimmy Rogers talking to the graduating class at U of Alabama about their dismal future:

http://www.planbeconomics.com/2012/03/02/jim-rogers-speaks-at-the-univer...

TruthInSunshine's picture

Will someone save The Bernank's beard for me?

I would like to use it, in complete form as possible, on a gold bust I am sculpting called "Let Them Eat Tradition," which I shall be revealing at the Guggenheim ex post Bastille 2.0

Thank you.

withnmeans's picture

Anybody care to see what things will be like here, in the near future? This is a comentary from a young man in Greece via ekathimerini, give it a read.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_01/03/2012_430709

maxmad's picture

The Bernanke will be playing KGB in the upcoming movie "Rounders 2"

Seasmoke's picture

pay that man his money

economics1996's picture

Politicians and bankers are equally quilty.  Mussolini ended up with his head on a spike.  I see no reason we cannot achieve the same results in America.

I think the Iranians have it down, slow hanging, let them kick a bit first.

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

The Gooch's picture

Oreos are the NEXT Federal Reserve Notes..

"Fuck That shit"- Ron Paul. http://www.youtube.com/watch?v=eWC_0jPFQ_Q

francis_sawyer's picture

fuck that... Bernanke is more like 'Lester the Worm'

RafterManFMJ's picture

 

 

Already has a bid; I want to shave it off and paste it on my Real Doll.  Getting tired of the Brazilian.

Silver Bug's picture

The people are becoming more and more educated. They should be worried.

 

http://ericsprott.blogspot.com/

max2205's picture

Anybody seen John Cotisione lately

Rate spike? Be sure GS JPM. will frontrun that too

Congress still hasn't passed the insider trading law. Wtf!

greyghost's picture

hitler had the jews????? what if the "central bankers" are "jews"????? does that make them off limits?????

BidnessMan's picture

In Weimar Germany many of the central bankers were Jewish. One reason why German farmers refused to sell crops for hyperinflating Weimar currency disparingly referred to as "Jewish Confetti".

swani's picture

@ To all who always try to make everything into a Jewish thing

Jamie Diamond is not Jewish. The Rockefellers are not Jewish. Neil Bush from the Savings and Loan scandal is not Jewish, Hank Paulson is not Jewish. Timothy Geithner is not Jewish. Jeffrey Immelt is not Jewish. John Pierpont Morgan of JP Morgan was not Jewish. Standard Oil, now Exxon/BP, the controlling shareholders of these companies are not Jewish. What about the IG Farben, now Roche, Avantis, Ely Lilly, most of the controlling  shareholders of the world's pharmaceutical companies are not Jewish.  

I feel that there are people whose view of the world is so simplistic that they need to blame a single group for all of the troubles of the universe and in order to do this, they must demonize a race or religion, ext. Often the very people that are trying to manipulate the sheeple for their own gain, will utilse this weakness in the human condition to seize power. That's why the government uses fear to label anyone a 'terrorist' in order to excuse imperialist wars fought for control over resources to benefit the monopolists and not the people. 

If things were that simple and we could just blame one group of people, life would be easy, but it's not.

 

dark pools of soros's picture

The sticking point is that the media overly protects against any Jewish slights. No one here is saying lock up all the Jews and leave alone all the other criminals. And your post implies the reverse

swani's picture

@Dark Pools of Soros

The media protects itself against appearing racist, antisemitic, male chauvinistic, ext, ext, ext. That's what being 'PC' is all about and that's the American way. The media is not only protecting itself from appearing antisemitic, it is protecting itself in general. 

dark pools of soros's picture

bull - the attacks are far and wide on many fronts and no, 'being PC' has never been 'The American Way'.  Liberty and Justice and Rule of Law would trump being PC in any history review of 'the American Way'

Where is the mass reporting of Rabbi child molestors? Why only attack Catholics on this front?   Should i continue listing all the double standards?

When has the media ever cared about being anti-christian?  I'm not a Christian but I rather just list one example

 

Careless Whisper's picture

The Careless Whisper Saturday Update & Threadjacking

Morgan Stanley Director Arrested In CT;  NYC Cab Driver Refused To Be Victimized

http://www.nypost.com/p/news/national/he_told_me_gonna_kill_you_mother_vmgGRFEuyedTN5Vf2VQKzM

China; 1 Billion Cell Phones, Everywhere Else, Not So Many

http://www.economist.com/blogs/graphicdetail/2012/03/daily-chart?fsrc=rss

Chinese Spy Stole Secrets From Dupont

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/03/03/BUNH1NFE5A.DTL

Chinese Protestor Tells World Bank/GoldmanSachs Zoellick; "Go Home With Your Poison!"; VIDEO

http://video.msnbc.msn.com/nbc-news/46555692#46555692

CNET Examines New technology In McLaren MP4-12C; VIDEO

http://cnettv.cnet.com/take-ride-mclaren-mp4-12c-hold-tight/9742-1_53-50120902.html

Kate Upton Commercial Goes Viral (warning; NSFO) VIDEO

http://www.youtube.com/watch?v=xdGsKzmCgB0

 

 

JohnKozac's picture

$204 from NYC top CT sounds too cheap to me.

Manthong's picture

marginalise-then-brutalise"

It might be worth it to see them swing.

(I had a "sarc" on but I took it off because it requires some more thought.)

eddiebe's picture

Make whatever arguments you want, but the fact is the bankers own the polititians, not the other way around. If this is not understood all conjecturings to make charts work have little meaning.

Ol Man's picture

Absolutely...

 

All the more reason to be ready with the kit...

Rope, Lampost, Banker... Some assembly required...

;)

BoNeSxxx's picture

From your lips to God's ears.

Don't forget the tar and feathers.

Conrad Murray's picture

in a year or two when populist vigilanteeism breaks through the heavily guaraded barricades at Marriner Eccles and Liberty 33 and demands blood, and the media says that "nobody could have possibly foreseen this", one will be able to say wrong - it was foreseen long, long ago

There are more than enough people around the world who know the true culprits are the banksters and their political front-men/women. There are more than enough people around the world who are unemployed, homeless, and FED up.

The writing is on the wall for youth across the globe. 15% real unemployment is the bare minimum. Dig into the numbers of any country and see what the youth are up against, 30/40/50% unemployment. Their futures have been sold, packaged, tranched, and leveraged for the benefit of those at the top who already have more than they can spend in 10 lifetimes.

The State is preparing with NDAA/SOPA/PIPA/ACTA/PATRIOT Act. There is no need to wait any longer. Time benefits only the criminals and traitors. The People of the World need to stand up, united in rejection of slavery, and demand their voices be heard.

May 1, 2012 is the day - http://pastebin.com/iTx8RA2P

drbill's picture

True. The bankers own the politicians. For now. But once the banker's ppaper promises aren't able to buy a loaf of bread, or more likely long before that, the bankers will learn how little the promises of politicians are worth. I wouldn't want to be a banker then!

unrulian's picture

really, and when the lynch mob knocks on the polititian's door at who do you think that greasy windsock will point his finger?

bank guy in Brussels's picture

The oligarchs own the corporate media which sway the opinions of the majority of people ... along with the CIA's two major internet censoring, search manipulation, and dis-information companies, Wikipedia and Google Inc.

The oligarchs are able to turn the hatreds of tens of millions of people in directions they want.

So far they are doing a pretty good job of inflaming nationalistic hatreds and getting most people to hate some 'foreigners'.

The old stand-by hatreds, inflamed against ethnic and religious groups, will serve the oligarchs just fine, as they have for centuries.

Pretorian's picture

Japan debt is Internal , it can only srew Japanese people outside debt is around 30% so no problem here. If you listen to Kayle Bass speaking nonsense about Japans debt then u freek out. Check for yourself do some research.

 

Bam_Man's picture

The old "We owe it to ourselves, so it's not really a problem" argument.

Doesn't hold water. Never did and never will. Watch and learn.

chindit13's picture

The planet Earth's debt is internal, so it can only screw Earthlings.

dark pools of soros's picture

Do you think it's time to put financial instruments into a time capsule to warn the aliens what eliminated the planet? They won't believe nukes did it

prains's picture

pretorian _ please do some research on ass hat 

VelvetHog's picture

Oh look, a wagging dog!

"And if politicians really want their central bank to do something, the central bank will have no choice but to do it."

 

I think this is backwards.

tony bonn's picture

i would love to see the banksters marginalized and brutalized but there is no doubt that the politicians succumbed to their wiles in accepting infinite debt to finance infinite greed....such wishes are always granted with fake fiat money....

Atomizer's picture

The filter is slowly being breached. Central Bankers are either going to develop new morality roles or perish in the evil poly to destroy society based on counterfeit monetary polices. I’ll let them decide the right choice.


 

Cdad's picture

First slowly, and then very fast, bitchez!

Yen Cross's picture

Based on purchasing power. I suspect " body guards" , are hard to come by. Beware banksters, the "grassy knoll" is a lot bigger.

fightthepower's picture

Central bankers need to be hung.

The Swedish Chef's picture

Yeah, those poor central bankers... The politicains have at least been elected. Tyler, go back to the "tar, feathers and pitch forks" stance. Much more palatable.

Tyler Durden's picture

Nobody is saying "poor central bankers" - this is merely a recipe for the future based on the simplest of human emotional triggers, and a warning for central planners and economists alike. 

Reread the piece.

Yen Cross's picture

The Swedish Krona has had a good run up. Take profit and cook those spicy meatballs on your(own), private island, or yacht.

 I'm sure Bill gates is hiring,after that win-8 release.