With each passing day, the lies and fictions we have been exposing since 2009 - from HFT, to the truth about QE, to the ultimate downfall of central banks through their own actions - are being debunked ever faster, called out and/or confirmed by increasingly more "serious" people, those who have benefited and been protected by the lie itself.
Case in point, an Op-Ed by Paul Marshall, CIO of Marshall Wace, one of the London's and Europe's largest hedge funds, with an AUM of $22 billion [16](so he probably knows what he is talking about) which is a tour de force of slamming the countless lies shoved down the population's throat every single day just so the rich can get richer.
From "Central banks have made the rich richer", first posted in the FT [17]:
Labour’s new shadow chancellor has got at least one thing right. Amid the brickbats thrown at John McDonnell, there is a nagging failure to acknowledge the validity of one part of his critique of the money-creation programmes of the four leading central banks. Quantitative easing, as this policy is known, has bailed out bonus-happy banks and made the rich richer.
It is a surprise that the UK opposition party and other leftwingers have not made more of this. Maybe they thought it was too complicated. It isn’t really, and it might appeal to voters’ sense of justice far more effectively than threats to raise the top rate of income tax or to introduce a financial transactions tax (which Mr McDonnell also supports).
Public pronouncements about the objectives of QE are deliberately shrouded in central bank speak. Depreciation of the yen is quite obviously an indirect effect of large-scale Japanese money printing — but it would not do for Shinzo Abe, the Japanese prime minister, or Haruhiko Kuroda, the Bank of Japan governor, to say so plainly. That would be politically toxic in the American heartlands. Nor would Mario Draghi, president of the European Central Bank, acknowledge that he is artificially distorting the bond markets so that the debt-ridden governments of peripheral Europe can continue to enjoy a low cost of capital (the eurozone’s very own Ponzi scheme). But that is what he is doing.
Instead, central bankers talk about two main objectives of QE. The first is to maintain the supply of money to the banking system, to prevent a contraction in credit from leading to a seizure of 1930s proportions.
The second is to stimulate what they call the “portfolio channel” via the purchase of sovereign bonds. Government bonds provide the risk-free rate for financial markets, off which everything else is priced. If you suppress the risk-free rate by buying debt, you boost the price of all other assets, from credit to equities to property.
Banks have been the biggest beneficiaries, with their 20- or 30-times leveraged balance sheets. Asset managers and hedge funds have benefited, too. Owners of property have made out like bandits. In fact, anyone with assets has grown much richer. All of us who work in financial markets owe a debt to QE.
But wait, it gets better, because the inevitable next step, helicopter money, direct Treasury monetization and absolute currency debasement, is just around the corner once demands for "QE for the masses" become the next big thing (as Macquarie predicted last week [18]).
It is no surprise that the left is angry about this, nor that they are looking for other versions of QE that do not so directly benefit bankers and the rich. Instead of increasing the money supply by buying sovereign bonds from banks, central banks could spread the love evenly by depositing extra money in every person’s bank account. In the UK, QE increased the money supply by £375bn, or about £5,800 per person. If this money had been distributed evenly it might have been frittered away on consumption rather than making a few rich people richer and bailing out the banks. But it might have been fairer.
Mr McDonnell and Jeremy Corbyn, the new Labour leader, advocate a second approach: targeting QE at infrastructure projects. The central bank would buy bonds direct from the Treasury on the understanding that the funds would be used to improve housing and transport infrastructure. The timing is flawed; the Bank of England deems further QE unnecessary, and any large money creation now would risk stoking inflation. But if the idea were kept as something to implement the next time the country faces a financial crisis, it would carry quite a lot of respectability.
Some object that creating money to spend on infrastructure would undermine the central bank’s independence by forcing it to buy direct from the Treasury. Yet monetary policy has already extended well beyond its technocratic bounds into the realms of wealth distribution. QE had clear wealth effects, which could have been offset by fiscal measures. All political parties should acknowledge this. So should those of us who want free markets to retain their legitimacy.
Coming to every "New Normal" banana republic near you...
