Central Bankers’ Bogus Wand Will Have No Effect

Central Bank heads believe they are magicians who can wave their magic wand to create whatever economic conditions they desire. But the problem is that they are consistently wrong in their assessment of the economy so they don’t know what to do with the wand. Also, the wand is not magic but just bogus. And this is the dilemma of all central banks. They are given unlimited powers to manipulate monetary policy and to print money.But when you give infinite powers to someone who can neither assess the situation properly nor understands the consequences of his actions, it is like giving weapons of mass destruction to a bunch of kids. But it is actually worse than that because the bankers are using the weapons to create wealth for their banker friends. Thus, central banks have created mega wealth for an infinitely small minority and unlimited debt and misery for the rest of the world. What central banks are doing is to create booms and busts of a magnitude that totally destroys the economy. And this is exactly what will happen in the next few years again.

The world economy would function considerably better without central banks. Instead of the massive booms and bust that we currently have, there would just be natural self-correcting economic cycles of much smaller amplitude. Because the turn of the cycle that is now beginning will change the world for a very long time. One hundred years of mismanagement will lead to the economic and human misery that could last decades or even centuries like the end of the Roman Empire.

There are no honest politicians

Back in December after the Fed rate increase, we discussed that the Fed again made an incorrect decision which soon would have to be reversed. Well, this week in her statement to Congress, Yellen started to backtrack. But like all politicians, she neither sees nor would admit to that most of the global economic problems stems from US monetary policy. It is because the US has lived above its means for over half a century and flooded the world with worthless printed dollars that we are now in this mess. But since she is a politician, she would ever admit to that. Instead, this week she blamed global market turbulence and higher risks from China as the reasons for conditions being less supportive of US growth. It is amazing how politicians can never be honest and see the log in their own eye rather than the splinter in their neighbour’s eye.

It reminds me of Gordon Brown, the former labour prime minister who when he was chancellor of the exchequer told parliament that he had abolished boom and bust. But when the 2006-9 crisis started, he blamed international conditions and not his own mismanagement of the U.K. economy. This is the immorality of politicians; they take credit for all good things but blame others for all the disasters they create.

The US to join the negative rate club

So Yellen has made another mistake which she half admitted to. As I said back in December, it will not be a question of no more rate increases but of rate reductions and probably even negative rates. She confirmed that the Fed is studying negative rates. She said, “We would want to be prepared in the event that we needed to add accommodation”. This Fed speak is just unreal. Why can’t they ever use language so that ordinary people understand. Well, we know why. They create fancy terms like quantitative easing and accommodation to make people believe that the Fed is doing something very complex and clever. Why not use the proper words like money printing and interest manipulation? But then the world would know it is just trickery so that is why they must hide behind incomprehensible Fed speak. Anyway, Yellen knows that negative rates are likely to come to the US and join the 13 countries who have it already. Steelwater AMSWEL-500 ... Check Amazon for Pricing.

The competition who has the lowest rates is hotting up. Switzerland is still leading with -0.75%. But Sweden is now catching up and just went to -0.5%. (I promise it is just a coincidence that I am both Swedish and Swiss!) Sweden’s economy is in relatively good shape currently so a rate reduction is not really justified. But the Riksbank’s official reason was that inflation is too low. What they don’t realise is that low or negative rates don’t stimulate the economy. It discourages savings and therefore also discourages investment. But the real reason to lower rates is not low inflation but to win the currency race to the bottom. This is what Sweden and Switzerland are competing for together with at least another 11 countries with negative rates.

Investors have a misplaced faith in bubble markets

Financial markets have for years ignored economic reality and just rejoiced over money printing and credit creation. We have said for quite some time that these false conditions would end in tears and this is what is finally happening since the start of 2016. This is of course just the very beginning. There is no panic yet in markets but that will soon come. In the last week, I have met with a number of ultra-high net worth individuals. They are worried but not enough to change their investment strategy which mainly consists of private equity, hedge funds and property. Hedge funds, in general, have had a bad 2015. Private equity investments are valued at fantasy prices. Very few investors realise that they might only get half the valuation in current market conditions. And it is fascinating how property investors believe that they are holding a wealth preservation asset. Little do they realise that bricks and mortar have zero value when buildings are empty with no income stream.

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