Those curious why Goldman Sachs felt compelled to undertake a quiet an unexpected by most (if not us) peaceful coup of the Bank of England, it is because the oldest central bank still has among its ranks people such as Andy Haldane, who in a world populated by deranged textbook economists who don't understand that it is the central bank policies' fault the world will be forever mired in substandard growth and soaring unemployment, is a lone voice of reason (recall BOE's Andy Haldane Channels Zero Hedge, Reveals The Liquidity Mirage And The Collateral Crunch [14]). And since the BOE has no choice but to join all its peers in a global race to the bottom (largely futile in a world in which currencies exist in a closed loop, and in which if everyone devalues, nobody devalues as even Bill Gross figured out yesterday [15]), it is prudent to listen to Haldane's warnings while he is still in the employ of Her Majesty the Queen. Such as his latest one, in which he says that the scale of the loss of income and output as a result of the crisis started by the banks was as damaging as a "world war."
From the Telegraph [16]:
The economic impact of the global financial crisis has been as bad as a world war and as a result public anger at banks was reasonable and understandable, said Andrew Haldane, a senior Bank of England official
Mr Haldane, the Bank's executive director for financial stability, told BBC Radio 4's The World at One on Monday that the scale of the loss of income and output as a result the crisis started by banks was as damaging as a "world war".
"There is every reason why the general public ought to be deeply upset by what has happened – and angry," he said.
"If we are fortunate, the cost of the crisis will be paid for by our children. More likely it will still be being paid for by our grandchildren."
Mr Haldane, the Bank's executive director for financial stability, said banks needed to be more honest about the risky assets on their books if confidence was to be restored to the system and lending to business was to flow again.
"Investors will be much less willing to put their money into the banking system. They will lack confidence in the banking system and will either charge very high rates for lending that money to banks or will just withdraw their money entirely," he warned.
He urged banks to "spring clean" their balance sheets to get credit into the system and create a "springboard" for a recovery in the economy.
Visually, what Haldane is referring to is that the nearly $7 trillion in savings deposits at various US banks (not to mention the countless trillions across the world) are sitting inert instead of generating a given percentage of income on this money. Indicatively, assuming a 5% interest rate, that $7 trillion would generate $350 billion in annual purchasing power each year, or over 2% of GDP. This also excludes the tens of trillions invested in fixed income instruments which in a normal world would also generate fixed income, and instead generate nothing under ZIRP.
Of course, what Haldane is effectively saying is that the all credit bubbles eventually pop, and when they do the general population suffers the same fate as when society is crushed by all out global warfare. And since it is the central banks who are always the permissive factors in pushing free money into the banking system, and engaging in such policies as ZIRP which mean zero income on bank savings, and finally - regulating said banks (or not as the case always is - just observe the latest spectacular blow up in JPM's "safe" internal hedge fund CIO division), what Haldane is saying is that while the world may have eliminated conventional warfare within the developed world, the economic consequences of the same kind of failed central planning the led to the Lehman collapse and the Great Financial Crisis are just as bad.
In essence, by removing the danger of conventional war (which however is once again rapidly rising in various parts of the world with the ascent of nationalistic political forces), central banks have ushered in a just as destructive, cyclical economic world war, which brings the same long-term social ravages as bombing campaigns if not the same immediate carnage.
But don't tell this to the economists who believe they can run the world from their ivory towers. After all, if only enough money is unleashed on the world (and by unleashed we mean diluted because banks may print 1s and 0s indicative of money, they can never create real wealth and asset productivity), all should be well. Just ask that "famous" liberal columnist from the NYT: after all he has a Novel prize.