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STAFF NEWS & ANALYSIS
The Question No One Is Asking About Central Banks
By Daily Bell Staff - February 16, 2016

Central banks face credibility test … The retreat from unconventional monetary policy was always going to be tricky. While economists are almost equally divided on whether Federal Reserve chair Janet Yellen will raise U.S. interest rates this week, the bond market suggests policy makers will wait. October's Fed minutes will be scrutinised for signs around the argument to raise rates at the final meeting of the year What are the limits to the power of central banks? That is arguably now the most important question in global finance. – Financial Times

We can see from this excerpt that the efficacy of central banking is assumed. The only question we need to ask is, "What are the limits to the power of central banks?"

Over and over, this is how the conversation is controlled. One can never ask the big question: Are central banks even necessary?

No, the necessity for central banking is never in question.

The central bank promotion has been ongoing for a century now – but it seems nowhere near its end-date from the standpoint of the elites that back it.

It's more in vogue than ever (for them) even though the ramifications of central bank policies are increasingly grim.

In fact, the Financial Times article allows that the performance of central banking has been fairly disastrous and that central bank credibility is shaky (to say the least). But it positions these issues as a net negative for markets and economies:

What is unfortunate about the waning credibility of the central banks is that confidence holds the key to where we go from here. The collapse of the oil price has delivered a spectacular windfall to the household and corporate sectors — energy companies apart — of the developed world.

The imperative is to persuade consumers and businesses to spend that windfall. When markets are palpably losing confidence in central bankers, such spending is less likely to materialise.

Here's another dangerous, false assumption: the "necessity of consumer spending."

Economies do not "demand spending." As Thomas Jefferson pointed out, a free-market republic is likely an agrarian one where people, in aggregate, control the sources of their survival including farms and the lands supporting the farms.

But the current, controlled, fiat-money environment has removed people from the land and created an entirely new economy to employ them. This "new" economy depends on "consumer spending."

No spending, no economy.

The modern economy is dependent on large volumes of debt-based notes. But these days the "money" is not being circulated because people increasingly don't believe in the modern model.

The crisis of confidence taking place in the West and around the world has to do with the malfunctioning of the current system and people's appraisal of its failure.

This is a significant – epochal – occurrence. But one that seems to be flying below the proverbial radar.

The Financial Times article ends by stating that, "The most difficult trick is to manage an orderly decline in the price of assets that had first been puffed up by the world's leading central banks."

This is true, but misses the point.

The trick is to find a SUSTAINABLE economic model that is not dependent on the artificial production of central bank money.

This is not something those in charge of the current system will try do, however. Their wealth and control rests on the continuance of the current system.

The challenge to our modern-day central banking economy may arrive anyway – but it will come from people simply refusing to support the system as it is.

Conclusion: Your challenge is to prepare for difficulties that are forming as a result of central banking failures. Which is why we mention regularly that you need to secure elements of your own survival and your family's through various common sense measures.

Posted in STAFF NEWS & ANALYSIS
  • Renov8

    My feeling is the Central Banks can’t do jack, knowing, if they let the normal process of economic cycles work its way out, the ramifications and popular vote will revolt……What say you?

  • Bruce C.

    I’m not sure I agree that those who back central banking think its end-days are “nowhere near.”

    The fact that they’re recognizing that “central banks face a credibility test,” and that “the retreat from unconventional monetary policy is going to be tricky,” and that central banks may not have the power to “persuade people to spend” means that the current system may be ending SOON, and I think they know it.

  • And the fact that politically incorrect governments aid and abet the intellectually challenged and bankrupt banking system is another problem which identifies the enemy to be taken care of ‽ .

  • stevor

    the overlooked question (at least by our “leaders”) is WHY are we paying “interest” (extortion money) on money created from Smoke when the Treasury can make it INTEREST FREE?

    • Bruce C.

      Do you mean money that the Treasury borrows from the Fed? If so, then that money IS interest free (by agreement in return for the US Congress chartering the Fed in the first place).

      • stevor

        No, not really. It’s real complicated the way they do it. There’s a real good video that explains it that I’ve seen. It’s something like this (but more complicated and I don’t remember it exactly):
        The US wants money. THe Fed prints it up. It’s sold to itself through some scheme, with interest, and then it goes to the US. There were NO TAXES before the Fed was created. There was usually no national debt. Now ALL of our income taxes goes to pay that “national debt” (extortion) to the Fed.
        This looks like the video, but I’m not sure it is:
        https://www.youtube.com/watch?v=aw_F5y7fo2I

        • Bruce C.

          No, it is. I agree it’s complicated but “the bottom line” is that the Treasury pays no interest on the bonds owned by the Fed. Here’s how it works: US Treasury bonds are fungible, meaning that there is “no way” for the Treasury to know who owns them.

          (Allow me to digress so that other readers can follow this. When the US treasury/government needs money it can obtain it in either of two ways: receipts from taxes, fees, fines, tariffs, etc. OR by borrowing it by issuing “US Treasury” bonds. (In theory) anyone can buy those bonds (i..e, loan money to the US government) – individual investors, investment companies, hedge funds, foreign governments, foreign central banks, and even the “primary dealer banks” that create the bond contracts themselves, and even the Federal Reserve Bank itself.)

          Therefore, the US Treasury pays out whatever interest is due each month on all of its US Treasury bond obligations, regardless of who owns them. However, at the end of each fiscal year the Fed Chairman meets with the Congress and blathers about whatever they want to talk about, and then mentions at a sufficiently poignant time that ‘the Fed will be transferring “X” billions of dollars to the Treasury this year.’ (Some of you may recall a televised meeting back in 2012 in which Fed Chairman Bernanke hautely announced that ‘the Treasury will be refunded $320 billion in bond interest payments.’)

          Remember, the Fed (or any central bank) couldn’t care less about “earning interest” because they are the legal counterfeiters of the currency. What they seek is control, and much of that control rests on the guilt imposed by debt obligations. Most people still think that money obtained from a bank is “real” in that it is depositors’ money – i.e., hard earned and worthy of repayment. The truth, however, is that bank loaned money is counterfeit in that it is un-backed and is not obtained from depositors or by providing a product or service voluntarily exchanged with the public. Instead, it is literally created electronically. Same with all central banks, and the Fed in particular.

          • reply to

            It is true, but they still keep about 6% of the money owed to Treasury for the “service” of administering the funds. That 6% is an enormous amount of money for an ever increasing debt for the fact that you created money out of nothing. And they get that every year!!!….

  • mutonic2db

    The Mystery of the One Bank: its Owners? – Jeff Nielson

    https://www.sprottmoney.com/blog/the-mystery-of-the-one-bank-its-owners-jeff-nielson.html

    ——————-
    The One Bank is “a super-entity” comprised of 144 corporate fronts, with approximately ¾ of these corporate fronts being financial intermediaries (i.e. “banks”). According to the Swiss computer model; via these 144 corporate tentacles, the One Bank controls approximately 40% of the global economy. The only thing more appalling than the massive size of this crime syndicate is its massive illegality.

  • Injun Holbrook

    There is a lot of talk about and always has been regarding the central bank’s “out of bullets” correction abilities. Without debating the need of the central banks and concentrating simply in the actual position of the banks, the banks are simply entering an experimentation era. Creative financing, natural law, government policy, political changes, tax and structural changes and a new “euro” central bank to manipulate. As Bruce C. so correctly points out that “central banks face a credibility test”. That credibility test will be met head on with simple “creative financing” and/or “financial engineering”. Some will fail and some will succeed. But they will learn and CREATE the needed changes in order to survive. Whether we like it or not, the central banks are not “out of bullets”. Maybe out of credibility-but not out of bullets.

    • Praetor

      Of course their not out of bullets. They lent Million to the Fed gov so they could buy Billions of >>>>Bullets. And we the taxpaying public are stuck paying, and going to end-up getting a receipt one way or another of those bullets!!!!

      • Bruce C.

        Fortunately, everyone is getting the “big debts are bad” theme. I don’t think the next US President or Congress is going to be able to increase the national debt much more, no matter who it is (even if it’s BS). Ditto for Europe and even Japan and China.

        Face it, it’s over. Smiley face.

        • Praetor

          Lets hope so!!!

    • Bruce C.

      Remember, their “bullets” are debt offerings. That’s all they have. When people/entities stop borrowing they’re rendered impotent. It could be that simple, and that profound. And – as an added bonus – this time it doesn’t require people to know much or act responsibly (sadly, never a good bet). Additional debt is just not desirable or possible for just about every one/entity. That could be the proverbial “brick wall” for the current system.

      • Injun Holbrook

        Bruce C. you are correct again. Debt is the hammer they hold over the less fortunate. But most of that treasury debt is geared towards nation states and institutional funds, whereas consumer debt is towards the average folks. In my thinking, it will be easy to manipulate the Sovereign debt (honor among thieves) and let the consumer debt fall where it may upon the general public. Kind of a “you can have my credit cards when you pry my cold dead hands from them”.

        The general public is consumed by debt, consumer debt. Any savings these people have are basically a forced savings in Institutional funds. There just isn’t that many treasury bonds available to these folks. So the debt bullets I believe, will be continued albeit in a different form, while the general public will continue to consume more and more debt until bankruptcies force a political forgiveness and or restructuring just like they did with all the underwater mortgages. I suppose the debate is not whether they can manipulate all this (they can) but when will it become a political problem that requires them to relieve themselves on the side of congressional walls.

        The largest most well funded lobbying group to push for sanctioned debt is the consumer credit people. Congress is being bought off to assure that creditors can not bankrupt themselves into solvency. (Credit cards and Student loans come to mind) This consumer debt is my concentration and has the possibility that could tear down that “brick wall”. Institutional debt can be manipulated for the foreseeable future but this consumer debt cannot be. It is failing and it is growing and it is the “crazy aunt” in the basement that will likely tear the “brick walls” down. I would enjoy your take on this, thanks.

        • Bruce C.

          Okay, we both agree that debt is a hammer and it’s the banking system’s only tool of persuasion. They may intervene in ways that affect everyone but such efforts are always to encourage borrowing (and spending).

          Other than that, your distinction between sovereign debt and consumer debt is overly simplistic, primarily because the US Treasury forces the public to buy US Treasury bonds through the Social Security system. There are many facets to just this one fact, one of them being that about half of the existing US Treasuries are owned by the public so if Treasury bonds crash US citizens will be hurt more than anyone else.

          I could go on, but I found a really excellent summary of all of this here: http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm

  • Astromoney

    Are not the Central Banks lining their own pockets by the favor of buying all those bonds (for our own good) and then instituting Negative Interest Rates which will drive those bonds through the roof? I know they are supposed to return their profits to Treasury – but what about all their member organizations? Maybe even more than a few of them could become solvent. In other words, they have plenty of “bullets” for themselves!

    • Bruce C.

      Not necessarily. Imagine a world in which “you” have a money/currency counterfeiting machine. Sounds “good” at first, right? Until you realize that your currency can’t buy much if no one else is producing or doing anything.

      They need a “golden goose” to leech. “We” are the “golden goose” that they NEED to leech. They need us to be productive and consumptive and indebted to churn the system. How to do that? THAT is their dilemma.

  • Praetor

    Remove people from the land, control freaks always build corrals and cages to maintain order of the herd! The windfall for consumers should be going to rid themselves of debt! When the Fed talks (debates) interest rates, their talking about allocation of capital. The control of capital and how its allocated is what brought down the Soviets, their five yrs. planning only decided who wins and who looses, This udder insane hubris was their attempt at controlling free markets. Of course we know the Fed most go. And it more than likely will, and with a bang. And in the future if their is one thing humans ‘BAN’, it should be ‘Centralized Banking Systems’!!!!

    • Bruce C.

      I think what you’re saying, and I agree, is that one of the most effective ways to fight the Fed and the entire monetary system of the world is to get out of personal debt and stay that way. When you think about it, money obligations and claims are the only things that the system can have on you, at least as of now.

      • Praetor

        Correct! They will as time goes on. Try and get you with associations, you’re speech, and the fact you may don’t have debt is what negative interest is all about. Can’t get you with positive, will hit you with the negative. The very reason centralized bank should be banned from existence. Have a savings account, goodbye savings. Plus say you don’t want to play at the casino on wall street, all you care about is a savings account, say making 3%. No, can’t have that either. You must under this system play the game of risk. Very wicked system!!!

    • LawrenceNeal

      ‘Utter’. Udders are on cows.

  • nailheadtom

    “The trick is to find a SUSTAINABLE economic model that is not dependent on the artificial production of central bank money.”

    There’s no need to find that economic model. The free market is the model and has been around for some time. Any government interference makes it less sustainable.

  • nailheadtom

    If the system is too complex for its engineers to operate, a more simple system is required: https://www.minneapolisfed.org/news-and-events/presidents-speeches/lessons-from-the-crisis-ending-too-big-to-fail

  • Danny B

    The FED may chug on for a bit longer but, there is no need for a central bank if there is no viable economy. The upper loop of the economy only exists as long as credit is expanding. THAT is the only thing that allows debt service. As the earning power of the lower loop diminishes, there will be incrementally less wealth to siphon off to the upper loop. http://www.theautomaticearth.com/2016/02/where-deflation-comes-from/

    This isn’t an open-ended system. The time left is very limited; https://pjmedia.com/news-and-politics/2016/02/12/rep-brat-wont-be-one-dollar-left-for-defense-education-transportation-in-11-years/

    NIRP has worked exactly opposite of what was expected. The higher the NIRP, the more that people save. Kuroda has instituted a scheme that is working in reverse of what he wanted; http://www.theautomaticearth.com/2016/02/is-this-debts-last-rattle/

    Draghi keeps shooting his feet off with his stupid ideas.

    “Bloomberg News reported in January that a $29 trillion corporate debt
    hangover could spark a recession. There is no historical precedent for
    the scale of corporate debt today as a share of wages and GDP — not
    even close. Total cumulative claims accruing to the existing debt
    preclude growth of world real GDP per capita in perpetuity, which leads
    to a binary outcome. Either demand increases immediately, allowing for
    the growth in income needed to service existing debt and add new debt,
    or a debt-deflationary wipeout unfolds and resolves.”

    If you look at the aggregate earning power of the lower loop of the economy in the West, it is in a downward slope.
    If you look at the magnitude of the bubbles blown by FED actions, it is in a corresponding upward slope.
    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/02/09/ice%20bowl%202_0.jpg
    This problem moves up the ladder; “On average, investors have lost a collective $57 billion per trading day this year”
    It isn’t possible to have such huge losses in the productive loop without these losses being manifested in the upper loop. There is no possible operating system that would work for the central bank while the productive loop of the economy is contracting

  • Danny B

    Here is the link that I was looking for earlier. I already posted one link about America running out of time for a financial crash. Here is more info.
    ” At present, the market is displaying the same set of characteristics as it did just prior to past market crashes. In both 1929 and 1987, the
    market crash began about 55 trading sessions after the peak” “This is exactly the pattern that the S&P has traced since its late-March peak.”
    http://hussmanfunds.com/wmc/wmc160215.htm

  • alohajim

    Indeed! Central banking is absolutely necessary for the banking families that own and run the world to continue to do so through the legalized theft supported by government force, the one and only reason fiat currencies exist. It’s quite similar to ‘harvesting’ the bile of Panda bears where the unfortunate creatures are hooked up live to a pump and tubing 24/7 to extract the bile while it waits to die in a cage.

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