Throwing a Flag on the Central Banks: Global Loss of Yardage!

Reposted with permission by Michael White via LinkedIn

What I've written here illuminates a major developing global economic reality, unheralded by almost all "mainstream" economists, media pundits and corporate leaders. The story thread is simple, logical and brutally compelling. But not comforting. So,"trigger warning" for the faint hearted: proceed at your own risk and remember: if everybody's thinking the same, then nobody's thinking!

_______________

For better or worse, I’m not on the fringe anymore with respect to my opinions on globalization, sovereign debt and the Central Banking cartel. That’s a bit frightening, actually. There is a growing voice of informed thinkers starting to agree with what I’ve published. It’s not pretty. It never has been. But it IS closer. Much closer. My readers know that I went out on a limb and predicted the beginning of the market retrenchment. It’s begun – right on cue this month. Oil and market valuations sliding in tandem. Difficult bond auctions. Predicates of things to come.

Perhaps you’re thinking this “big picture” stuff is rather theoretical and not “actionable” within your own personal sphere of ambitions, concerns and business activities. There is a grave danger in such mistaken assumptions. It’s time to tune in. Focus. Because everything I’ve been writing about is coming into that focus. Right now. Right as predicted. There’s nothing you can do about it. But being caught sideways by an unexpected blow is never an optimal choice.  

Some of you know who John Mauldin is. His readership is exponentially larger than mine – and he gets paid for what he writes (justifiably by comparison, perhaps). Here’s what Mr. Mauldin wrote on Sept 14 (yesterday): 

We face a whole different kind of chaos on the geopolitical front. To a considerable degree it overlaps with the economic problems I’ll discuss today. George Friedman has been calling the Eurasian landmass a “cradle of disorder.” It’s home to 5 billion people, and it’s floundering in a sea of accelerating crises. Regular readers know that George doesn’t exaggerate. He may be the most fact-driven person I’ve ever worked with. He looks at good evidence and draws sound conclusions. And right now he sees evidence in Eurasia that looks chillingly similar to what happened in the years leading up to World War II. I know that’s a strong statement. George doesn’t issue it lightly. He is genuinely concerned – and I am, too. Thoughts from the Frontline , Sept 14, 2016

So too, Larry Summers (here I refer to Mauldin's comments on that topic): “He [Summers] points out that despite all the happy talk from Janet Yellen at Jackson Hole, the Fed doesn’t have any ammo left. His paper and others point out that typically the Fed reduces interest rates by about 550 basis points in a recession. If a recession kicked in tomorrow, that would plunge us to the breathtaking interest rate of -5%. As I wrote last week, a footnote that Janet Yellen cited approvingly in her paper suggested that rates should go to -6% or -9% during the next recession to be effective.” Mauldin then quotes a Washington Post article Summers penned last week: 

“I suspect that prevailing views at the Fed about the efficacy of quantitative and forward guidance substantially exaggerate their likely impact. I don’t think the Fed has taken on board the lesson of the three-year period since QE ended. If longer-term rates had risen after QE and forward guidance ended, this would surely have been taken as further evidence of their potency. It follows that the fact that term spreads have fallen substantially since the end of unconventional policy, as shown in Figure 3, should lead to more skepticism about their efficacy.”

In essence, Mr. Summers is now saying what I’ve been saying all along: the Central Bankers have no ammo left in their gun. Summers just called them out in a no-holds barred chastisement. The FED walked us into a monetary box canyon of debt with nowhere to go. Summers reviles the Central Bankers as ineffective, fiscally-illiterate and without any plan of what to do next… 

Are they…? Personally, I’m not so sure such that conclusion is entirely accurate. 

Mr. Summers assumes that the Central Bankers WANT to stabilize global monetary and economic realities. That is a rather unsubstantiated assumption, in my opinion. The Central Bankers are not dumb. They’re very, very smart. Ivy league. They’re bankers – they’ve learned how to pull currency out of thin air. If we can’t do that, they’re smarter than you and I are, right? 

Where am I going with this thought?

First I want everybody to read this article published September 14, 2016 by Brandon Smith in Alt-Market.com: http://www.alt-market.com/articles/3012-the-world-is-turning-ugly-as-2016-winds-down.

Mr. Smith is not a “fringe wonk”. He is an astute observer, albeit of an increasingly absurd scenario. Don’t let words like “elites” or “globalists” throw you off. If you still believe that such references betray “tell-tale” reflexives of conspiracy-theory bias and that sovereign governments (including our United States) are still calling the shots, then you’re a bit behind the times in your factual processing. It's known as “wishful thinking”. 

To that point, some of you will recall what I published on LinkedIn early this year in an article entitled: NIRP: The Capitulation of Common Sense. Tellingly, every one of the three major prognostications I set forth in that article is already in evidence today. There I quoted Central Banker Mario Draghi – who in a rather unguarded moment - revealed an extremely chilling truth about the card Central Banks hold at the global poker table: 

"I firmly believe that, in order to restore confidence in the euro area, countries need to transfer part of their sovereignty to the European level.A lot of governments have yet to realize that they lost their national sovereignty a long time ago. Because, in the past, they have allowed their debt to pile up... " [Emphasis added] An interview quote from Mario Draghi, President of the European Central Bank published in Der Speigel on October 29, 2012

That was a remarkably coherent utterance from a Central Banker, wasn’t it? Chillingly so. Janet’s interminable and insufferable “FED-speak” could take a few pointers from Mario… But I’m sure the Central Banker fraternity immediately escorted him into a paneled board room to bitch-slap Draghi into silence after that unplanned and awkward indiscretion. That Central Bank physical (not fiscal) intervention was presumptively effective – Mario’s never said anything like that since! 

I disagree with Brandon Smith on only one point. But that point is THE essential construct that I want all my readers to CAREFULLY consider.  Brandon thinks we’re approaching crisis. I do too. But I propose something more than crisis as our focus.

I believe that the Central Bank strategy is on course toward creating crisis as an intentional strategy. The Central Bankers aren’t stupid or ineffective. They are doing exactly what they intend to do – and they will not relent in their course of action until their mission is accomplished. That is the only logical explanation of their actions to-date - if you really think about it carefully. It’s brutal logic. But persuasive, as such. 

Need a “for instance” on that one? Let’s go to the recent statement of Federal Reserve Vice Chair Dr. Stanley Fischer in an interview with Bloomberg’s Tom Keene last week in which Fischer (unfathomably!) goes on record about negative interest rates saying: “We’re in a world where they seem to work.” Really? I’d like see just ONE confirmation of that statement ANYWHERE in the global economy. Anywhere. 

It must be nice to be "the King" – the ultimate arbiter of who will thrive and who will suffer for the sake of bringing forth a hauntingly “Aryan-esque” vision of academic financial utopia! Dr. Fischer – you are indeed one of the most dangerous and evil men to walk the face of the earth since WWII. I hope that’s not a prognosticator of global realities to come… But consider what Dr. Fischer said and then decide for yourself:

“Well, clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that, and we have to make trade-offs in economics all the time, and the idea is, the lower the interest rate the better it is for investors."   http://investingchannel.com/article/400128/Fed-Vice-Chairman-Admits-Fed-Sponsors-Wealth-Inequality - .V9rY6ZMrJTY [emphasis added]

Note that by Dr. Fischer’s direct admission the FED will willingly and affirmatively throw wage-slave “savers” under the monetary bus to benefit “investors”. Still got any questions about the “elite” preferences of the Bankers or their focus on the stock market rather than wage or manufacturing growth measurements (the REAL indicators of economic growth and sustainability)? 

The Central Bankers have a distinctly opposing orientation: a preferential option for the rich. Draw your own conclusions on what opposing spiritual orientations this may suggest if straying into those realms informs your reflections…

More objectively, consider why - after 8 years - would a group of people continue hard-pressed on a course of relentless monetary theory that hasn’t yielded one shred of tangible objective validation since they began? That same monetary theory was implemented in Japan 20 years ago with the EXACT same results we see now in a global context: low interest rates and stagnating economic growth.  Coincidence?

It is exactly eight years TODAY since Lehman filed for bankruptcy and there have been 672 rate cuts by the Central Bankers globally since that event. 672?? Simple question: if you try something again and again and again and again - and you are STILL doing it eight years later, doesn’t that suggest by very fact of such repetition that MAYBE what you are doing isn’t working? 

But let's continue beyond that thought – because that is not the focal point here. 

My premise: it IS working – but nobody comprehends exactly what the Central Bankers are working toward. What if what we all believed about what Central Banks are doing – and what they are actually bent on accomplishing - were two entirely different and opposing realities?

Unthinkable? Not so much. Let's consider the logic and the evidence supporting that premise. 

In effect a global economic collapse would permit a new financial structure to be implemented. It would consolidate the power of the bankers over what remains of ALL sovereign governments. It would be imposed upon the glowing ashes of massive sovereign bond defaults caused by a predicate global economic debacle also precipitated by Central Bank policies.  Crisis situations result in ill-advised responses that are born of an undue urgency and purposefully orchestrated fears. The Patriot Act was a case in point: a frightful infringement on Constitutional rights rationalized within a crisis mentality and circumstance. Our sense of vulnerability and urgency justified an otherwise inconceivable revocation of individual rights. And we were grateful to endorse it... at that time.

Remember all the fear mongering that the media engaged just prior to the Brexit vote? I covered that in detail for my readers. That predicted parade of immediate and draconian "terribles" never happened, did it? Why the scare tactics? Because Brexit was a very unpleasant reversal of fortune for the Central Bankers. They didn't take that threat seriously - until it was too late. Now they've got to repair that damage with any rationale or plausible threat that can "pull the EU back together". Russia? Immigration? Just coincidence... but neither warranted urgent headlines just a few short months ago.

Crisis is a necessary predicate. Fear and anxiety embrace what calmer deliberations would never accept. Beware of white knights riding black horses. In a crisis situation, people embrace desperate solutions. Bitter remedies become more palatable in desperate situations, and a crisis is desperate by definition.

When you default on a mortgage, who ends up owning your house? That’s a simplified version of the reality – but an effective illustration. If the Banker plays his cards to assure that (1) he loans you a LOT of money again and again and (2) he starts to impede the economic growth of the company you work for so that your personal wages stagnate or decrease and (3) your ability to stay current on your ballooning mortgage debt becomes ultimately dependent upon the Banker continually lowering the rates on that increasing debt, then ultimately who gets control of your house if the interest rates on that debt suddenly goes up? Surprise! Think sovereign nations, debt and GDP growth (or lack). Is it clearer now?

Hard assets have intrinsic value: fiat currencies do not. Consider: what is the value of a defaulted financial instrument (your delinquent mortgage) versus the value of the house itself?  Does it lose value when the mortgage on it defaults? No? Simple question: who prefers to end up owning that house instead of the paper? Who seeks control over that truly valuable asset in preference to a worthless promissory note when the game is over? A smiling banker. 

All fiat currency is just a promissory note. Nothing more. An event of sovereign bond default and consequent higher yields will make it impossible for over-leveraged nations (name one G-20 economy other than Russia that isn’t up to its eyeballs in debt!) to sustain their crushing debt loads at anything higher than the artificially low yields currently enforced by the Central Bankers. Fact: the sovereign nations are NOT dictating the rates paid on their sovereign debts, are they? Who is calling that shot? Whoever is buying that debt? Think "quantitative easing". That's quite a startling revelation, isn't it...? Japan's central bank is buying the majority of Japan's debt.

Let me speak clearly: The “crisis” will unfold when the Central Banks are suddenly (surprise!) “unable” to contain massive global chaos in the financial markets within the constraints of their “monetary policy”. As global economies slip further into “Japanese stagnation” (and folks, you’re blind if you haven’t noticed a steady global GDP diminishment trend over the past 3 years), the revenues available to service the massive debts accumulated in sovereign bonds over these past 8 years (read my article above) will begin to stagnate, if not actually decrease.

But the ever-increasing debt payments of those same nations will remain. Those debt payments will increasingly compete within a limited constraint of stagnating revenues against massive entitlement programs paid for by the same deficit financing mechanisms that generate ever-increasing sovereign bond issuances. Deficit financing is the ONLY way that politicians can fund massive electorate-pleasing social welfare programs and lucrative (often outrageously profligate) defense contracts that assure their re-election. Politicians know that government largesse buys votes. Truly, this has created a Faustian bargain between Central Bankers and politicians worldwide. That’s why Congress will NEVER vote to audit the FED. Amazing how few folks have considered that simple and evident symbiotic connection… it explains a lot, doesn't it?

The first bond default (and Deutsche Bank and/or Japan are a logical nexus for that inaugural event) will suddenly inform the markets that “reality” does in fact exist: that the normative yields of the Central Bank structures in no way reflect the actual risks inherent in the global financial system. Rates will rise commensurate to that growing awareness of inherent risks and the fear it increasingly engenders. 

The rest will take care of itself… the currency markets will see volatility never before seen in global history as common sense returns to value fiat currencies in relation to sobering financial facts: revenue vs debt: assets vs. liabilities. The chimera illusion of central bank beneficence will be brutally stripped away – and the most erudite of credentialed financial pundits, counselors and corporate economists who did NOT see this coming will be revealed as myopic fools whose academic credentials papered-over a jaw-dropping deficit of common sense. Suckers.

Doggedly repeating any behavior or action that doesn’t seem to be working is not logical. Insisting in the absence of any credible evidence or confirmation that it WILL work – after 8 continuous years – is not logical. Proposing that negative interest rates "appear to be working" without any credible, empirical support for that presumptive statement - is not logical.

None of this makes sense, does it? 

No, it doesn’t. Until you insert just one small piece of missing logic into an otherwise incongruous factual matrix. That piece is: it IS working. We’re just not understanding the game going on before our very eyes. We’re blinded to an unthinkable premise: which side of the field are the Central Banks progressing toward? 

We've see all the plays. All 672 of them. We see where the end zone is.  But we still can’t understand something that is now as plain as day: WHY not even a "first down" marking measurable progress toward the desired end zone after 672 plays!  

In fact, the Central Banks are losing global yardage, play-by-play, in over 600 plays so far.

• Wage growth and Consumer purchasing power = loss of yardage. 
• Home ownership = loss of yardage
• Global GDP growth = loss of yardage. 
• Manufacturing growth = loss of yardage. 
• Shipping rates = loss of yardage. 
• Rising consumer debt = loss of yardage.

Now stop there. Do you see it? If you step back and look at the progress and trend of ALL those plays you will begin to notice a VERY telling reality. Yes, the Central Bank players are telling us they're focused on the desired end zone. They seem to be lined up in offensive formation. But something just isn't adding up. The progress of their fiscal football is progressing steadily and resolutely toward the other end of the field.

What?! We were all thinking they were on our team. They were heading for our end zone, right? No.  Not really… their peculiar football movement confirmed over multiple plays betrays a very different reality - and begs a very important question!

Follow the ball, folks. Please. This is not rocket science. Just LOOK.

A chilling insight, indeed. How appropriate for Halloween. Fear is fun. Halloween satisfies our weirdest desire: we really do enjoy getting the bejeezes scared out of us. You won’t have to wait too much longer… Just thrown out a penalty flag. Loss of yardage will result. A massive walk-back toward the opposing end zone. Who will greet us when the global game ends in their end-zone? The league owners themselves.

Smiling bankers.

Perhaps, this was your first glimpse of Dr. Fischer's world of Aryan finance?  Yup.