STAFF NEWS & ANALYSIS
Reuters Explains the Prevalence of Central Bank Money Printing
By Staff News & Analysis - February 03, 2014

A central banker's 'license to lie' … Federal Reserve Chairman Ben Bernanke, who retires this week as the world's most powerful central banker, cannot be trusted. Neither can Janet Yellen, who will succeed him this weekend at the Federal Reserve. And neither can Mark Carney, governor of the Bank of England; Mario Draghi, president of the European Central Bank, or any of their counterparts at the central banks of Turkey, Argentina, Ukraine and so on. I am not trying to aim a valedictory insult at Bernanke or his central banking colleagues … For just as James Bond has a "License to Kill" in the Ian Fleming books, so central bankers possess a "License to Lie" – or, putting it more diplomatically and politely, to make promises about the future that cannot be honored and often turn to be false. – Reuters

Dominant Social Theme: Central banks lie because they have to.

Free-Market Analysis: This Reuters article (somewhat surprisingly) makes a good point about central banking policy … that lying is part of necessary bank policy.

It also makes a point we've been making for months now: While a good deal of discussion will focus on "tapering" and other kinds of tightening, that's probably not what is going to be happening in the near future.

That's the article's conclusion. Here's more:

Nobody ever blamed a central banker for promising to support the currency and then suddenly allowing a massive devaluation — as happened in Argentina last week and may soon happen in Turkey, Ukraine, Russia and many other emerging markets.

To mislead investors is actually a key skill required by a central banker's job description. Revealing the true state of national finances at a time when a devaluation or comparable financial crisis is looming might be to guarantee the loss of the central bank's entire reserves.

… Yet despite this historic record of broken promises and unfulfilled commitments, central bankers enjoy more respect and trust than any other public official. They are particularly trusted by the people they most frequently deceive — financial market investors.

Which brings us to the state of the world economy today. This week's financial headlines have been dominated by the currency chaos in Turkey and Argentina, but the deeper problem has been a new bout of uncertainty about global economic prospects — and especially about the commitment of the Fed and other major central banks to continue stimulating economic growth.

On this score, some of the most unsettling news has come not from Argentina or Turkey, but Britain. This was Carney's admission last week that his promise of July to keep interest rates near zero until 2016 would need to "evolve" in view of last year's rapid decline in British unemployment.

… The question now is whether the Fed can restore the market belief that easy money is here to stay — at least until the United States returns to sustained economic growth and full employment, which cannot possibly happen until 2015 or beyond. History suggests that such promises from central bankers can never be fully trusted. And the recent experience in Britain confirms this.

Yet despite this historic record, Yellen will probably succeed in restoring faith in the Fed's commitment to continuing economic stimulus and easy money. And not just because of her personal credibility, which is strong but not any stronger than Bernanke's. The reason for confidence is the fact that continuing stimulus and easy money are the only economic policies that will serve the Fed's institutional interests — and the U.S. national interest — between now and 2016.

banner1

This last graf is perhaps the most important, as it points out what we (and others) have been explaining: The Fed is trapped by its own policies and the necessities of additional stimulus.

As a ShadowStats-based analysis points out, however, the emphasis of the US economy is shifting to exports:

It's that annual growth number, 1.9%, that is the reason all the talking heads are promoting the 4th quarter numbers. And speaking of those fourth quarter numbers, 3.2% GDP … If you just look at the components of that number, energy exports, and exports in general, had a huge impact. The components of the US growth are slowly changing.

The growing exports of the US – one would assume partially as the result of such technologies as "fracking" – seems like a positive trend, but the analysis notes that China's GDP is sinking as the US's is expanding. If China grows significantly weaker, the impact on the world's economy would be grave.

The other issue regarding US exports involves where the jobs are coming from, along with exports. As we've been pointing out recently, the issue of corporate personhood has allowed for the massive growth of US multinationals based not on the inherent viability of these behemoths but on their judicial protections.

Paul Craig Roberts, a columnist published weekly at The Daily Bell, recently wrote an article entitled, "How Economists and Policymakers Murdered Our Economy." Roberts doesn't get into corporate personhood in that column but he does discuss the impact that such titanic corporations have on the larger economy.

When US corporations send jobs offshore, the GDP, consumer income, tax base, and careers associated with the jobs go abroad with the jobs. Corporations gain the additional profits at large costs to the economy in terms of less employment, less economic growth, reduced state, local and federal tax revenues, wider deficits, and impairments of social services.

… US policymakers and their echo chamber in the economics profession have let the country down badly. They claimed that there was a "New Economy" to take the place of the "old economy" jobs that were moved offshore. As I have pointed out for a decade, US jobs statistics show no sign of the promised "New Economy."

In fact, whatever uptick there is regarding the US economy is probably ephemeral at best. We happen to believe that unemployment is at least 30 percent among those who want to work, and the stimulus applied by the Federal Reserve is merely creating asset bubbles.

Is this evidently the plan? Providing currency directly to individuals would actually stimulate employment, though price inflation would likely move up hard. In any event, central bankers cannot provide funds directly to individuals without revealing the simplicity of the money-printing system.

Nor can central banks – especially the Fed – tighten aggressively. We are living in a kind of parallel universe where officials create a narrative and the mainstream media covers it – but none of it is true.

We will continue to read about money tightening but if you look closely there will always be contradictory indicators as there are currently. Little is real about this "recovery" except the constant stimulation.

And that stimulation will, in fact, drive forward a "Wall Street Party" in our estimation that may go many more months or even several years.

After Thoughts

After that, like a patient kept alive via the most extreme measures, the economy will surely collapse and other elite agendas will no doubt be pursued

James Altucher: “Do NOT Buy Bitcoin Until You See This!”
Do NOT…
I repeat… Do NOT buy Bitcoin before you see what I’m revealing here.

Posted in STAFF NEWS & ANALYSIS
loading