Central Banks: The Great Experiment Has Failed

Authored by Nomi Prins via The Daily Reckoning,

My latest book, Collusion: How Central Bankers Rigged the World, is about the leading central banks and their incestuous relationships.

The book dives into how central banks rigged the cost of money and the state of the markets, and ultimately created more inequality and instability as a result. They did all of this in order to subsidize private banks at the expense of people everywhere.

The book reveals the people in charge of these strategies, their elite gatherings and public and private communications. It uncovers how their policies rerouted economies, geopolitics, trade wars and elections.

Central banks have several functions from an official standpoint.

The first is to regulate the smooth and orderly operation of private banks or public banks within a particular country or region (the ECB is responsible for many countries in Europe).

The other function they are tasked with is setting interest rates (the cost of borrowing money) so that there’s adequate economic balance between full employment and a select inflation rate.

The idea is that if the cost of money is cheap enough, private banks will lend to the general population and businesses. The ultimate goal is that the money can be used to expand enterprise, hire people and develop a stronger economy.

In an environment where the cost of money is too cheap, it could cause inflation. When inflation rises, central banks are expected to lower the cost of money in order to keep it under wraps.

While those basic functions should be relatively simple, what has unfolded is anything but.

Since the financial crisis, the Fed has been unleashed. The U.S. central bank has quite literally fabricated nearly $4.5 trillion in funds to buy bonds (assets) from the major private banks. It should be noted that those private banking institutions are members of the Fed system.

The Fed then provides that money to the banks and the institution can then hold the funds in reserve, or choose to sell their Treasury or mortgage bonds back to the Fed.

The reality is, central banks have provided money as cheaply as possible to banks in order to keep the private banking system operating.

When looking at the world since the financial crisis, it was clear that there was a “pivot” between regions. Different countries, and their respective central banks, were either forced to participate in, or caught up in, in the collusion started by the Fed.

The Fed’s playbook was then deployed across the world by other central banks.

In particular, the G7 collectively fabricated $21 trillion worth of money. They took the liberty then to buy government bonds, corporate bonds, mortgage bonds and, in the case of Japan, ETFs (exchange-traded funds). Other banks, like Switzerland, went so far as to create money and directly purchase stocks.

What this meant was that an external supply of money was injected into the world’s markets, in a nearly limitless amount. These actions pushed markets higher, and the bond markets were inflated with this excess money, causing a new round of debt bubbles.

These “conjured money” efforts did nothing to alter the fundamental values of companies. Companies could borrow money and buy their own stocks on the cheap, increasing the size of corporate debt and the level of the stock market to record highs.

Because money was so cheap and interest rates so low, no other investment opportunities could offer the same high returns, so speculators piled into the stock markets, further elevating their levels.

We have built up corporate debt and the markets to such great highs that the potential for a fall would be at an unprecedented level. To further complicate the matter, we have seen record buybacks occurring in the markets, but such landmark moves are not connected to organic growth and are detached from the foundation of any economy.

To visualize this, imagine pulling the rug out from under a table full of dishes. The higher you stack the dishes, the greater the crash when they fall.

Today’s global debt to GDP ratio stands at a record of 224%, according to the IMF’s latest calculations, amidst record debt of $164 trillion. Much of that debt was created because the central banks offered up money at such cheap levels to borrow.

To add to the complexity, certain central banks are starting to realize that reversing their course could present its own problems. If those cheap money rates do rise, and currencies like the dollar appreciate in value, developing countries that took on debts over the past decade will be cornered into a difficult position to repay it.

That debt trap itself could be a catalyst for economic shock and job losses. Such moves would likely begin in lesser-developed economies, and eventually grow outward.

There is also considerable reason to believe that any major banking collapse could have similar characteristics. Banks will either lock down the money they lent, or restrict the funds available for withdrawal to depositors, depending on the severity level of collapse.

Historically, governments have tried to respond to such conditions with government-led bailouts (augmented by corresponding central bank bailouts), but they are not usually enough to forestall stock markets crashing, pensions tanking and life-insurance funds being gutted.

Perhaps most alarming, we have seen virtually no real steps to reform the financial system.

Despite some cosmetic regulations to curtail certain risky behaviors, since the repeal of the Glass-Steagall Act in 1999, there is still no division between depositors’ funds and those used by banks for speculation.

The big banks continue to make massive trading bets, and corporations are still focused on buying back stock for short-term shareholder gains rather than reinvestment in their businesses.

Since the financial crisis, not a single bank CEO has been seriously punished, despite the frauds and felonies committed by the biggest U.S. banks. If a person steals a car, he gets charged with a felony and likely goes to prison. If a big bank, like Wells Fargo recently, scams millions of dollars of phony fees from its customers, its CEO gets a raise.

Meanwhile, the government regulator in charge gets a promotion to a top spot in the Federal Reserve system.

By bringing back legislation like the Glass-Steagall Act that divides those two elements of banking, separating them into different institutions, we could keep banks from having greater influence on government. It would also help protect everyday citizens’ money.

Meanwhile, we could limit the amount of money central banks can fabricate to artificially elevate these banks and the markets — markets in which the majority of people have no stake. In fact, just 10% of the population owns 84% of the stock market.

At the very least, we could have an independent audit of these central banks to allow voters and leaders to better understand where their money goes and what is used for.

We should also call out and alter the austerity measures enacted throughout the world that are punitive to people, while in the backdrop so much money has been conjured to help the banks and financial system.

By doing so we could potentially shift central banks’ roles as well as private banks’ incentives to building long-term infrastructure and to financing small and local businesses. In this way, we could assist the less wealthy and enable upward mobility for all.

Globally, the $21 trillion conjured by these central banks that still remains, if diverted into the foundational — or real — economy could provide regular citizens of the world (to whom I dedicate my new book) a fighting chance.


TheWholeYearInn nope-1004 Thu, 05/10/2018 - 12:19 Permalink

They're soon to get a fresh new start in North Korea.


Soon they'll all be walking around as debt slaves, while their entire resources & infrastructure will be hollowed out and in the hands of a few (((architects)))


Fat Boy will get the Biff Tannen suite in the new Taj Mahal hotel & casino (all the way up until he changes his mind someday, whereby he'll end up like Ghaddafi or Saddam Hussein).

In reply to by nope-1004

MoreFreedom nope-1004 Thu, 05/10/2018 - 12:51 Permalink

"... there is still no division between depositors’ funds and those used by banks for speculation."

Certainly the Fed creates moral hazard.  But banks have always speculated with depositors' funds.  They loan it out over years, but allow depositors demand withdrawals.   Which creates a risk of bank runs. 

Ending the Fed doesn't end the Treasury and its ability to print money.   Returning to gold backed money, where the government will redeem paper dollars for gold, does end the ability to print money (because if they don't get the gold to back it, then people will redeem their dollars for gold).  That forces government to live within it's means and forces it to collect the money before it spends it.  

In reply to by nope-1004

nsurf9 karenm Thu, 05/10/2018 - 12:25 Permalink

Stolen from what we should have gained on our savings; or, by actually diluting the money we worked hard to earn, these bastards are, and have, completely exploited the hole that pure fiat money provides - - a way to thieve themselves rich and, at the same time, completely and utterly gut the middle-class of this country.  And, we are letting them do it ! ! !

Every person, mainstream media, political pundit, dog and cat on earth should be screaming - you muther ukening thieves and start hanging these bastards. 

In reply to by karenm

GunnerySgtHartman karenm Thu, 05/10/2018 - 12:45 Permalink

Central banks have several functions from an official standpoint.

The first is to regulate the smooth and orderly operation of private banks or public banks

The other function they are tasked with is setting interest rates

I don't know if the writer is saying this from a theoretical or realistic standpoint - but if we must have central banks (and I don't think they are necessary), then their functions are twofold:

1. Foster a stable currency

2. Be the lender of last resort

and nothing more.

The "function" of setting interest rates was one of the key reasons why things went to shit in 2008.  Even Greenspan admitted it - after the fact, natch.

In reply to by karenm

any_mouse Janet smeller Thu, 05/10/2018 - 13:37 Permalink

And who set up the FED and decided what its 'official' functions would be?

Who audits the FED?

Who makes decisions about FED policy?

Start with a secret meeting of unelected powerful men on an isolated island away from NYC-WDC.

There is no Constitutional foundation for the FED.

There is no moral or legal foundation to creating Public Debt to benefit a private few.

They are loansharks created by an Act of Congress.

In reply to by Janet smeller

Curmudgeon49 GunnerySgtHartman Fri, 05/11/2018 - 14:07 Permalink

Quite the contrary, Greenspan prevaricated.

Greenspan was gung-ho to get rid of Glass-Stegal so that the banksters could unleash their "complex financial instruments", otherwise known as gambling with your money. Greenspan was instrumental in creating the meltdown and covering it up.



In reply to by GunnerySgtHartman

TheRideNeverEnds karenm Thu, 05/10/2018 - 13:22 Permalink

It’s not their fault you failed to buy stocks.  Bernanke told you, Obama told you, Yellen told you, everyone at CNBC told you, every broker in the world told you, internet memes told you.


Just do it.   


As we continue this breakout and next leg higher to new highs you fall further and further behind having not jumped on the free money train that is “””the market”””.  




In reply to by karenm

privateparts501 karenm Thu, 05/10/2018 - 14:20 Permalink

Keeping the peasants enslaved with debt while at the same time keeping them distracted with television and social media discussing things that are of no real importance.

The rulers are happy, the peasants are happy. Everybody is happy except the few who understand what is happening, know it is bad yet powerless to stop it.


In reply to by karenm

spqrusa Thu, 05/10/2018 - 12:16 Permalink

The Central Bank is the Tree of Life for the Tribe and the Squid - those written in the book life live in opulence.

The rest of us... well.. not so much. End the Fed. Hang the Banksters.

Pollygotacracker Thu, 05/10/2018 - 12:24 Permalink

If Congress is able to legally trade their legislation, what was stopping Central Bankers and their minions from doing the same? They buy politicians, and get bailed out by the taxpayers when their schemes unravel. What a fucked up system! It's no wonder everybody out in the real world is hustling their asses off trying to compensate. 

Ms No Thu, 05/10/2018 - 12:36 Permalink

OT: I dont blame anybody ever for refusing government orders but now might be a good time to heed government warnings to evacuate in Hawaii.  The lava lake is getting too low (last I saw dropped 700 feet) and now is at risk of taking in water table intrusion/ explosion.  USGS is even bringing it up now.  It could probably be calculated by seeing how far it dropped last time before blowing.



VWAndy Thu, 05/10/2018 - 12:41 Permalink

 Fiat and corruption go hand in hand. Feeding off each other in a completely psychotic chain reaction. Eventually it will reach a critical mass.

 That stall and barter thing? Yea think it over for yourself.