STAFF NEWS & ANALYSIS
Shock: BIS Sees Global Asset Bubble
By Staff News & Analysis - January 29, 2013

BIS warns banks to be vigilant on high asset prices … A top international finance official is warning banks to be cautious about the prices of investments that have gone up sharply because of current low interest rates. Jaime Caruana, the general manager of the Bank for International Settlements, says the low interest rates in effect now may have made it difficult to assess the true value of those investments. – Malaya Business

Dominant Social Theme: We central bankers have to stay on top of these pesky bubbles.

Free-Market Analysis: Actually, it is NOT surprising that BIS officials have begun to warn about a bubble; it is perhaps a bit surprising that they would choose to speak about it now. Maybe they are trying to get "ahead of the curve."

As we've pointed out often in the past (as part of what we'd like to think is an educative function), central banking is all about bubbles. And in the current environment, with Western bankers furiously printing money, it is impossible for financial bubbles NOT to form.

Central banking is, in fact, the process of printing money … these days, paper money. And the printing of such money is inflationary. The definition of money printing is "inflation." You're inflating an asset. Those who work for the BIS surely realize this. Here's more from the article:

In an interview at the World Economic Forum in Davos, Switzerland, Caruana told The Associated Press that banks and their regulators "should be vigilant on the prices of some of these assets."

That's so that bank finances are solid in case those assets fall in price when central banks in developed countries start raising interest rates as the economy recovers.

Investments such as U.S. junk bonds — bonds issued by corporations with less than perfect credit ratings — have gone up as investors abandon lower-yielding, safer investments in search of higher interest yields. That rise, however, could go into reverse when rates rise. And that could mean losses for investors and banks if they are not careful ahead of time.

"We should be monitoring the levels of the asset prices that have moved rapidly, particularly in risky assets," Caruana said. "Financial institutions need to understand that the level of rates is very low."

At some point, there will be "a return to normality. and I think they should be at some point in time resilient to this type of movements," said Caruana.

When we unscramble what Caruana is saying we come up with several interesting insights.

First, Caruana is settling – as is done almost every day – the controversy between Keynesian and classical definitions of inflation. He is admitting, as all bank officials must, that the primary problem of central banking is the over-printing of money. Again, another description for that is "inflation." When prices go up, that's price inflation.

Caruana also avers that central bankers should be monitoring the levels of asset prices – and the implied conclusion is that bankers ought to figure out when asset values are too high and quit their easing.

But notice that Caruana does not explain how bankers will know this. In fact, central bankers have NO WAY to know when too much money has been printed. They only know after the fact, when price inflation begins to spike.

Caruana also points out that there will eventually be "a return to normality." But as we have tried to explain so often, a central banking economy is ALWAYS abnormal. China, for instance, experienced thousands of years of a certain kind of culture. Then in 30 years, thanks to monetary stimulation, it became a completely different "consumer" culture.

The hallmarks of a central banking society are incredible monetary instability and harsh distinctions between haves and have-nots. Grinding poverty. Impossible wealth. The constant contraction of society toward a smaller and smaller elite and an ever-larger pool of the impoverished. This is its bequest and the future it builds.

Such a society may feature improbable technological accomplishments, but fewer and fewer will create them. Those of great promise – or rare blood – are winnowed out in childhood and provided with the facilities of production. Everyone else is considered a kind of "excess."

These societies go through stages, as China has. In the beginning there is great euphoria as monetary stimulation is misunderstood. People attribute their great good fortune to the same elite that is oppressing them.

Later on, there will be an established middle class and a series of expensive truisms. People will grow up believing that government should own and operate most of society's valuable facilities – roads, schools, military units, various resources, parks, hospitals, infrastructure generally.

All of this is unsustainable but it is not seen as so right away, as it is funded by money printing. People get used to the society as it is, however, and do not expect it to change.

Honest-money societies such as ones that existed in the US before the Civil War or in Switzerland until recently are fairly unchanging societies. Infrastructure changes and advancements are made but there is nothing like the frenzy of change associated with a consumerist central banking society.

The final stage of a central banking society may be its dissolution. People have been thoroughly tricked into giving up power and wealth to centralized authorities operating central banking functionalities. In the end, there is no society left and those who have perpetrated the trick have gathered most if not all of the society's important resources.

This is the inevitable result of the kind of disciplined monetary debasement practiced by central bankers. Given that it is, how can we want "a return to normality"?

Central bankers have no idea what a return to normality looks like. They have never seen a normal society. And secondly, even if there was a return to normality, it would be a distinctly abnormal one as central banking economies are abnormal to begin with.

It is unfortunately a gigantic bait-and-switch. People are baited with their own money but the society that they are building is one that is being created block by block to destroy them and their progeny.

Adding to this long-term destruction of society are the short-term shocks provided by unlimited currency debasement. Caruana is warning that another one may take shape if central bankers in places like the US, EU and Britain don't quit their printing.

But Caruana is likely being hypocritical as all top bankers are when they issue these warnings. The system is set up to destroy the societies that it is supposedly "stabilizing." And the asset bubbles about which he is warning are inevitable and are caused by the process he is supposedly supervising.

It is an entirely malevolent system and the sooner it is done away with – not moderated or reconfigured – the better. Let there be monetary competition and the circulation of gold and silver as money – as in the past. Let there be localized trade and modest enterprises.

After Thoughts

People simply should not have control of trillions and trillions. It is a distortion of natural law and creates the Ruin of All.

Posted in STAFF NEWS & ANALYSIS
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