As we tip-toe near the edge of the third central bank generated financial bust of this century, there is absolutely no way of stopping the crash landing just ahead. Why? Because the central banks are so caught up in their own self-justifying group think that they are utterly incapable of seeing the massive financial derangement all about them – a casino that is blindly impelled to churn the secondary capital markets and inflate the price of existing assets to higher and higher levels until they ultimately roll-over under their own weight. Let me explain.
By David Stockman (edited & abridged version)
Central bankers now have their big fat thumbs perpetually on the Easy Button because they are addicted to it. In the case of the Fed, it has been in a rate cutting or rate holding mode during 80% of the time since 1990. The result is that free market price discovery has been extinguished.
1. The central nervous system of capitalism – the markets for money, debt and other capital securities – now goose-steps to the pegged prices and monumental liquidity infusions of the central bankers.
2. They have seized an enormous aggregation of power that is utterly unaccountable. As a result, an increasingly threadbare ideology of self-justification goes unchallenged.
3. Their exemption from accountability insulates the actions and theories from the discipline of both the market and the democratic process. Indeed, they are the most unaccountable concentrations of power since the era of absolute monarchy.
4. This central bank ideology holds that capitalism is chronically prone to accidents and under-performance but this core central bankers’ proposition is absolute hogwash.
- Every one of the 10 business cycle downturns since 1950, including the so-called “deep” recessions of 1975, 1982 and 2008-2009, have been caused by Washington, not the inherent tendencies of market capitalism.
- In fact, all of these downturns were quite shallow and there is no reason to believe that the US economy would not have “recovered” on its own after these shallow downturns in real final sales – downturns which were caused by central bank induced credit booms in the first place – so all along, then, the Fed has been fighting a bogeyman.
5. The central banks have, more importantly, been claiming powers of economic recuperation that do not exist. In fact, the Fed’s historical “counter-cycle” stimulus measures amounted to little more than a cheap parlor trick. That is, slashing interest rates to induce a temporary spurt of credit growth that does not actually generate sustainable gains in real wealth, but merely steals spending from the future by hocking balance sheets and imposing preemptive claims on future incomes.
- The massive amounts of new cash that the Fed pumps into the financial system – and the only thing it is really capable of doing is minting new cash out of thin air by depositing self-manufactured credit into the bank accounts of dealers selling securities to its open markets desk – never leaves the canyons of Wall Street.
- It ends-up bidding up the price of financial assets – that is, inflating financial bubbles and this is exceedingly perverse because sooner or later financial bubbles burst when they reach utterly irrational levels and the last sucker is fleeced in the casino. Bursting bubbles, in turn, cause a sharp retrenchment of household and business confidence, resulting in lower spending and intense liquidation of excess inventories and labor accumulated by bullish businesses during the financial bubbles apex.
- Needless to say, the central bankers and their Wall Street shills then say I told you so – claiming that the economy is now caught in a circular swirl toward the drain. It can only be “saved” if our indispensable central bankers have the “courage” to crank up the printing presses for another cycle of rinse and repeat.
The fact of the matter, however, is that, as we tip-toe near the edge of the third central bank generated financial bust of this century, there is absolutely no way of stopping the crash landing just ahead.
Once upon a time, the proprietors of the central bank might have taken preemptive action in the face of the absolutely lunatic speculation now evident in the stock and bond markets…
The true evil of the central banks is their sweeping usurpation of power. Namely, that they are so caught up in their own self-justifying group think that they are utterly incapable of seeing the massive financial derangement all about them.
Needless to say, the sweeping deformations that have now accumulated in the financial systems of the world owing to this kind of heavy-handed central bank market manipulation have reached an acute stage. Every day there is more evidence that we are approaching a blow-off top.
The central banks have generated a casino that is blindly impelled to churn the secondary capital markets and inflate the price of existing assets to higher and higher levels – until they ultimately roll-over under their own weight. That is, the central banks have fostered an unstable and destructive system of speculative finance that, everywhere and always, is the enemy of genuine capitalist prosperity.
The Easy Button addiction of our central bankers is thus not just another large public policy problem. It is the very economic and social scourge of our times.
The above words are heavily edited and paraphrased excerpts from the lengthy original article by David Stockman (davidstockmanscontracorner.com) which is well worth your time to read (complete with charts) in its entirety here. “Follow the munKNEE” on Facebook, on Twitter or via our FREE bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner).