Monday, February 1, 2016


Monetary Fools

The Bank of Japan has joined the negative interest-rates party.

On Friday, the BoJ introduced a -0.10% interest rate on excess reserves parked at the bank by financial institutions. U.S. markets cheered and surged higher. At this point that is a huge mistake.

Japan's central bank stunned the markets Friday by setting the country's first negative interest rates, in a desperate attempt to keep the economy from sliding back into the stagnation that has dogged it for much of the last two decades.

Japan has now joined the EU, Denmark, Switzerland and Sweden in imposing negative interest rates. More than a fifth of the world's GDP is now covered by a central bank with negative interest rates.

The exciting thing — or scary thing, depending on how you see the world — for the market is that negative interest rates continue to be a bigger part of the global monetary-policy discussion after having, for a long time, been a sort of theoretical exercise.

Moving to negative rates reflects a measure of desperation on the part of central banks.Their traditional tools have been exhausted, and in many countries' interest rates have been pushed to almost nothing for a long time now. Their prescriptions are at this point worse than the disease.

The Bank of Japan's surprise decision to start charging depositors for parking excess reserves at the central bank triggered a global equity rally. But several monetary policy watchers and market strategists worried that the move was an acknowledgment that the world's central banks are running out of ammunition in the battle against deflation.

This is a move that looks a lot more like desperation or novelty than it looks like a program meant to make a real difference. The move underlines a degree of desperation and a sense that the asset purchases at the heart of global quantitative-easing strategies are running up against some important limits.

Eventually the prospect of recession that can't and won't be cured by the central bank printing presses will ignite sheer panic in the casino. 

Then the monetary fools running them will be reviled to the ends of the earth. But not before the lunatic valuations of the FANGs implode like those of all the high flyers which have gone before. For the third time this century it is time to sell the central bank created bubble.

This the third and greatest central bank driven bubble of this century is well past its sell-by date. The central bankers are getting downright deranged, as Kuroda-san demonstrated on Friday.

Japan is an old age colony sinking into the Pacific. The very last thing it needs is more inflation to erode the purchasing power of its massive and growing retired population, and then to tax their bank accounts with a negative interest rate to boot.  !!!!!

After what amounts to 20 years of ZIRP and QE, the grand Keynesian monetary experiment of the present era has been proven an utter failure in Japan, which is now sliding into its 5th recession in seven years. And still U.S. markets saw more stimulus as a good thing, that is a sign of a very desperate and dangerous environment.

Why do they keep resorting to madcap expansion of central bank balance sheets, and thereby the systematic falsification of financial asset prices? They are desperate, they have no real solution so they continue to pretend that QE in all it's various forms is working, despite all the 
contrary evidence.

Ostensibly, the aim is to reverse a deadly run of consumer price deflation.

But here's Japan's CPI over the last 35 years. That is not deflation!

In fact, the 2% mantra has no basis in economic logic or proof in financial history. It's just a giant cover story that the world's fraternity of central bankers have invented to justify there massive and constant monetary intrusion.

But here is the real reason why Japan went to NIRP. The Nikkei was down 24% from its June peak. The desperate fools who run the BOJ panicked and voted 5-4 to stop the hissy-fit. That's all there was to it.

Ultimately, negative interest rates from a veteran of monetary expansion such as the BOJ mark a capitulation about the effectiveness of QE. Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders. Central bankers are implementing negative interest rates to force savers to buy assets …so as to artificially stimulate the economy.

The BOJ's NIRP gambit may provide a few days of relief at best, but then the implosion of the world's monumental financial bubble will continue, and probably gather pace.

Why? Because the central banks have shot their wad. Two decades of madcap credit expansion have brought Japan and most of the rest of the world to a condition of peak debt, which means that the central banks are now simply pushing on a credit string. It is more than obvious that QE has failed and still the masters of the universe insist that it is working and markets cheer with each application.

For the better part of seven years that foolish endeavor has generated massive unsustainable inflation of financial asset values.  It has fueled the lunacy of we have fixed our problems.

But as the global economy sinks into the deflationary recession that is inherent in a crack-up boom, it will become increasingly evident that they are powerless to alter the course of the real economy.

Eventually the prospect of recession that can't be cured by the central bank printing presses will ignite sheer panic in the casino. Then the monetary fools running them will be reviled to the ends of the earth. 

Sadly for the third time this century it is time to sell the bubble.

In adopting negative interest rates Japan is reaching for a new weapon in its long battle against deflation, which since the 1990s have discouraged consumers from buying big because they expect prices to fall further. Deflation is seen as the root of two decades of economic malaise.

This shows how utterly divorced from reality today's mainstream economists and central bankers are – not to mention how lazy financial journalists are, who never seem to question this nonsense. The above assertion even flies into the face of economics 101. People buy less when prices decline? Since when? In what universe? Japanese consumers are allegedly waiting since the 1990s for "prices to fall further"? 

To call this utter bullsh*t feels almost like an insult to bullsh*t.

The cunning plan of the mad hatters running the world's central banks seems to consist of making people richer by making them poorer. One can safely assume that they haven't really thought this one through.

It appears to us that the ever more desperate monetary policy measures adopted by the BoJ are coming closer and closer to crossing a point of no return. In other words, the BoJ seems to be entering what is popularly known as the "Keynesian endgame". Once the threshold beyond which confidence is finally lost is crossed, the long maintained sophisticated fiat money Ponzi scheme and the associated three card Monte played between central banks, commercial banks and government treasuries will come to a screeching halt.

Kuroda's decision has brought the world another step closer to the end. 

It would be a dangerous error to believe that such policies can be adopted without inviting severe consequences.

It is quite ironic actually: the very people the economy depends on the most with respect to wealth creation are also most likely to be terrified by these developments. Consequently they are likely to withdraw more and more from genuine wealth creation activities. They will simply be far too busy trying to save themselves while it's still possible.

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