Will Central Banks Survive to the Mid-21st Century?

https://jackrasmus.com/2017/09/26/will-central-banks-survive-to-the-mid-21st-century/

Via discussion in comments at:

https://thenextrecession.wordpress.com/2018/04/02/marxs-law-of-value-a-debate-between-david-harvey-and-michael-roberts/#comment-112849

Am converting the article to an annotated copy of most of it for analysis and possibly ongoing discussion.

Basically I will be interested in reading/and or listening to the regular flow of such articles on the current conjuncture when I have studied more background and got this web site functional (first am committed to reading Anwar Shaikh 1000 page book, which I hope will provide more background).

My current knowledge is limited to casual reading plus several MOOCs on finance, including quite good IMFx courses via edX and a very useful course from Perry G Mehlring of Barnard College, Columbia on Economics of Money and Banking:

https://www.coursera.org/learn/money-banking

Was struck by several points from that course:

  1. Clear explanation of traditional banking from Walter Bagehot and something very major having transformed it relatively recently.
  2. Economists view present determined by past (eg structure of investments). Finance views present from expectations of future (investments based on prospective discounted cash flows depending on expected yield curves, prices etc). Money and banking deals with the daily present where the mistakes of the past meet the expectations of future unknowns and are never in equilibrium.
  3. Economists and finance experts tend to be fairly clueless about money and banking.
  4. Important details of how dealers/market makers actually function and freeze up.

There is an extensive technical literature on central banking, which is quite different from what macroeconomists read. I do intend to get at least an appreciation of it despite that requiring a lot of work and considerable delay. I have not done this yet and I am reasonably confident that most macroeconomists simply have not attempted to do this.

Meanwhile, this is just off the cuff annotations.

September 17, 2017

By Jack Rasmus

(In this article, just published in the World Financial Review (London), Dr. Jack Rasmus comprehensively elaborates on the failures of global central banks’ nine-year experiment since 2008, their inevitable transformation, and ultimately, their survival beyond the mid-21st century. The article is based upon research and conclusions in Dr. Rasmus’s just published latest book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017, which is now publicly available in bookstores, on Amazon, and from this blog.)

“After nearly nine years of a radical experiment injecting tens of trillions of dollars and dollar equivalent currency into their economies, the major central banks of the advanced economies – the Federal Reserve (Fed), Bank of England (BoE), European Central Bank (ECB), Bank of Japan (BoJ), and the People’s Bank of China (PBOC) – appear headed toward reversing the policy of massive liquidity injection they launched in 2008.

Led by the US central bank, the Federal Reserve, central bankers have begun, or are about to begin, reducing their bloated balance sheets and raising benchmark interest rates. A fundamental shift in the global availability of credit is thus on the horizon. Whether the central banks can succeed in raising rates and reducing balance sheets without precipitating a major credit crunch – or even another historic credit crash as in 2008 that sends the global economy into another recession tailspin – is the prime question for the global economy in 2018 and beyond.1

I know I have no clue. My impression is that a major part of central banking consists of forming “market expectations” about what the central bankers are going to do by issuing public statements and trying to keep this credible. Anything said by anybody about their intentions in the current situation strikes me as inherently not credible.

Consequently I haven’t attempted to follow such statements closely, nor the extensive punditry about them. But the heavy qualifications above – “appear headed toward” and “have begun, or are about to begin” strike me as the sort of thing central banks have been saying for quite a while for pundits to bloviate about while avoiding loss of credibility by saying anything more definate, perhaps because they also have no clue what they can do.

Fundamental forces in recent decades associated with globalisation, rapidly changing financial structures worldwide, and accelerating technological change significantly reduced central banks’ ability to generate real investment and productivity gains – and therefore economic growth – after nine years of near zero and negative benchmark rates. The same changes and conditions may threaten a quicker than anticipated negative impact on investment and growth should rates rise much in the near term. In the increasingly globalised, financialised, and rapid technological change world of the 21st century, central bank interest rate policies are becoming less effective – and with that central banks policies less relevant.

Similar fundamental forces in less recent decades led to widespread acceptance that capitalism was now crisis free with a “Great Moderation” presided over by the wise monetary and fiscal policies of central bankers and governments. No “fundamental forces” suddenly changed in 2007-2008. Opinions on what the fundamental forces were doing suddenly changed because the previous “facts” had become untenable.

The view that central bank interest rates were incredibly relevant and effective and that they have some magical power to “generate real investment and productivity gains” has certainly taken a pounding since then, with good reason since the “Great Moderation” turned out to be a mirage.

Although I know practically nothing about central banking I cannot even imagine how anyone could think they ever had an ability to “generate real investment and productivity gains”. Such fantasies do seem widespread but I just don’t get it.

The way I see it central banks were VERY effective during the GFC in avoiding a subsequent Great Crash and Great Depression. We do know that was relevant and effective and how they did it. At the time they said quite clearly that doing what they did was not their job and that they were taking extraordinary measures that could not work long term to give governments a breathing space to figure out what to do. Naturally governments haven’t done much and the bankers may well be blamed as usual. But how does such analysis claiming banks have failed to do something they never claimed to be able to do actually help anybody understand what to do?

The $25 Trillion Radical Experiment

For the past nine years the major central banks have embarked on an unprecedented experiment, injecting tens of trillions of dollars of liquidity into their banking systems and economies – by means of programmes of quantitative easing (QE), zero interest rates (ZIRP) and even negative rates (NIRP), among other more traditional means. The consequence has been the ballooning of their own balance sheets.

Officially, the balance sheets of the five major central banks today total conservatively $20 trillion. The Fed’s contribution is $4.5 trillion. The ECB’s just short of $4.9 trillion, but still rising as it continues its quantitative easing, QE, programme purchasing both government and private bonds. The BoJ’s is more than $5 trillion, while it too continues even more aggressively buying not only government and corporate bonds but private equities and other non-bond securities as well. The BoE’s total is heading toward $1 trillion, as it re-introduced another QE programme in the wake of the Brexit vote in June 2016. And the PBOC’s is estimated somewhere between $5 and $7 trillion – the result of liquidity injections supporting its state policy banks and entrusted loans to industries and local government construction projects.

Add in important “tier 2” central banks – like the Swiss National Bank, the Bank of Sweden, and central banks of India, Brazil, Russia and others – that in recent years have also significantly increased their balance sheets, global balance sheet totals easily exceed the $20 trillion of the five majors.

This historically unprecedented $25 trillion global liquidity injection by central banks worldwide has occurred within the context of a simultaneous general retreat from fiscal policy as well – at least in the form of government direct investment and spending…

That sounds about right to me. But haven’t the central banks, plus OECD, IMF et al been repeatedly insisting that governments need to be following an active fiscal policy, with governments going for austerity instead? Wasn’t that WHY they resorted to such extraordinary means?

Something interesting is now happening in the US. As usual it is the Republicans, as the party of fiscal responsibility, who are blowing a giant hole in the budget. As far as I can see the Democrats are only posturing against it and are likely to make it even easier for Trump to run trillion dollar deficits after November when they replace some traditional GOP deficit hawks with populist Democrats running on Trumpist policies in purple states and Trumpists replace other deficit hawks in red states. Isn’t such deficits what central banks have been begging for?

…This historically unprecedented $25 trillion global liquidity injection by central banks worldwide has occurred within the context of a simultaneous general retreat from fiscal policy as well – at least in the form of government direct investment and spending. With the exception of China perhaps, it has meant almost total reliance in the advanced economies on central bank monetary policy.

My impression is that China has even larger liquidity issues done by provincial and local authorities operating off the internationally visible balance sheets (perhaps like Greece?).

Anyway, given that previous total reliance on central bank monetary policy shouldn’t we now be discussing the US government having got rid of the previous budgetary paralysis and started cranking up trillion dollar deficits?

Since 2008 central bank monetary policy of massive liquidity injection, generating super-low (and even negative) interest rates, has been the “only game in town”, as others have aptly described.2 Talk of renewed government investment and spending in the form of infrastructure investment has to date been only talk. Elites and policy makers in 2008 chose central bank monetary policy as the primary, and even sole, engine of economic recovery. And it has proven an engine running on low octane fuel, and now running out of gas.

Remains to be seen whether it is still only talk given general collapse of elites and policy makers more recently. Also remains to be seen whether Trump’s successful maneuvers for massive fiscal deficits will just result in immediate stagflation like earlier efforts decades ago, or will get him past 2020. I gather the commentators claiming that everything is going well are just promoters to retail “investors” and day traders whose role is mainly to provide market liquidity with their “investments”. I assume most serious commentators agree that things look pretty dire “running out of gas”. My inclination is to agree. But I know nothing and have no reason to believe that they know anything. If they do know something, why aren’t they too busy making a fortune on the futures markets to dispense their wisdom?

Has the Nine-Year Experiment Failed?

In retrospect, monetary policy has not been very effective – whether considered in terms of generating real economic growth, achieving targets of price stability and employment, or even in terms of ensuring central banks’ primary functions of lender of last resort, money supply management, and banking system supervision.

If measured in terms of central banks’ primary functions, avowed targets, and monetary tools’ effectiveness, the past nine years of “monetary policy first and foremost” (with fiscal spending frozen or contracting) may reasonably be argued to have failed. The $20 trillion central bank monetary experiment was supposed to bail out the banks, generate employment, raise goods and services prices to at least 2% annually, restore financial stability, and return economic growth in GDP terms to pre-2008 crisis averages. But it has done none of the above – despite the $20-$25 trillion massive liquidity injections.

When and why did people start seriously believing that central banks had primary functions that could simultaneously generate real economic growth, price stability and employment? To me this belief that they were supposed to have magical powers was merely a product of the “Great Moderation” and the total non-existence of any serious study of econmics from a genuine left.

They do have real, not purely imaginary, primary functions as lender of last resort, with responsibility for money supply management and banking system supervision, discussed below.

That in turn raises the question: should anyone believe central banks’ pending policy shift – i.e. to sell off and reduce their balance sheets and raise interest rates – will prove any more successful?

Which in turn raises some other questions. Do central banks themselves believe it? Would they actually do it if they did not believe it? Should anyone believe this “pending policy shift” is really likely to happen? Have markets shown much sign that they do believe it. (eg Are the zombie firsm that would go bust appointing liquidators and is there general panic?)

Both mainstream and business media generally concur that central banks policies since 2008 saved the global economy from another 1930s-like global depression. But an assessment of central banks’ performance in terms of their primary functions, in achieving their publicly declared targets and objectives, and in the effectiveness of their monetary policy tools suggest the track record of central banks has been far less than successful.

Should anyone believe central banks’ pending policy shift – i.e. to sell off and reduce their balance sheets and raise interest rates – will prove any more successful?

Ok I agree that anything mainstream and business media generally concur on should be viewed with great skepticism. But there plainly has not yet been another 1930s-like the depression so the article SEEMS to be suggesting that they ought to have been doing something more “primary” than avoiding it. Is this a claim that there was no such danger, or that dealing with that danger was less important than something else?

Lender of Last Resort Function. Clearly some of the biggest commercial banks were rescued after 2008. The bailout was enabled by means of a combination of programmes: i.e. central banks providing virtually zero interest loans and loan guarantees to banks, directly buying bad assets like subprimes from banks and private investors at above market rates, forcing bank consolidations, suspending normal accounting rules, establishing government run so-called “bad banks” to offload bad debt, and by temporary bank nationalisations. But the global banking system today is still over-loaded with a mountain of non-performing bank loans (NPLs) and other forms of private debt and remains therefore still quite fragile. Lender of last resort appears to have been successful in rescuing some large banks, but much of the rest of the banking system has been left mired in a swamp of bad debt.

Official data show NPLs in Europe and Japan officially at levels of $1-$2 trillion each. But much of it is concentrated dangerously in certain periphery economies and industries, which makes their NPLs potentially even more unstable. China’s NPLs are estimated around $6 trillion. NPLs in India are certainly hundreds of billions of dollars and perhaps even more, and are almost certainly officially underestimated. Then there’s Russia, Brazil, South Africa and other oil and commodity producing countries, the NPLs of which – like India’s – have been accelerating particularly rapidly since 2014 as a percent of GDP, according to the World Bank. Moreover, all that’s just official data, which grossly underestimates true totals of bad debt still on banks’ balance sheets, since many NPLs are conveniently reclassified by governments as “unrecognised stressed loans” or “restructured loans” in order to make the magnitude of the problem appear less serious.

In other words, the $25 trillion central bank liquidity experiment has left the global economy with $10 to $15 trillion in global NPLs. And that’s hardly an effective “lender of last resort” performance, notwithstanding the bailout of the highly visible big banks like Citigroup, Bank of America, Lloyds, RBS, and others. What remains is a massive bad bank loan debt global overhang of at least $10 trillion. And when high risk private debt in the form of corporate junk bonds, equity market margin debt, household and local government debt are considered as well, “non-performing” debt totals likely exceed $15 trillion worldwide at minimum. A truly effective lender of last resort function would have cleaned up at least some of this bad debt, but it hasn’t. Beneath the appearance of a successful post-2008 lender of last resort function lies massive evidence of central banks failure in their performance of this function.

The global economy thus remains highly fragile, despite the $25 trillion liquidity injections by central banks since 2008.3 The global banking system is permeated with “dry rot” in many locations. If financial stability is an avowed objective of central bank policy, the magnitude of global NPLs and other forms of non-performing private debt is ample testimony that central banks have failed the past nine years to restore stability of the financial system. Central banks have failed to implement pre-emptive lender of last resort programmes and have been content to respond in reactionary fashion as lender of last resort after crises have erupted.

By definition, the “lender of last resort” is REQUIRED to respond in a reactionary fashion after crises have erupted.

Central Banks have not just followed the traditional Walter Bagehot policy described by Marx (prevent liquidity panics by lending freely at high rates on good collateral). They have been acting as “dealer of last resort”, not just “banker of last resort”.

For many decades following the second world war they were rather successful in ignoring Marx’s explanation:

“The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values.”

As with Monty Python’s “flying sheep”, the result will be not so much flying as plummeting, but “think of the enormous commercial possibilities if they should succeed”

Maksakovsky explains clearly enough why banks keep making that attempt despite its repeated failure. Monty Python expresses this more vividly.

As far as I can make out the article agrees that this has not worked and could not work. But at the same time the complaint seems to be that they should have done it more!

They have been “ineffective” because Harold the flying sheep has not in fact learned how to fly and it was supposedly their “primary function” to teach him how to do so!

Money Supply Management Function. The great liquidity experiment is not just a phenomenon of the post-2008 period. It has been underway for decades, beginning with the collapse of the Bretton Woods international monetary system in the 1970s which gave central banks, especially the Fed, the task of stabilising global currency exchange rates, ensuring price stability, and facilitating global trade. Neoliberal economic policies, first in the UK and USA then later elsewhere, further encouraged and justified central bank excess liquidity policies since the 1980s. The removal of restrictions on global money capital flows in the late 1980s helped precipitate financial instability events globally in the 1990s that further encouraged central bank excesses. So did technological change in the 1990s that linked and integrated financial markets and accelerated cross-country money velocities that made banking and financial systems increasingly prone to contagion effects. As financial asset markets’ bailouts grew in frequency and magnitude after 1990 in response to multiple sovereign debt crises, Asian currency instability, bursting tech bubbles, and subprime housing and derivatives credit booms, central banks provided ever more liquidity to the system. At the same time changing global financial structures gave rise to forms of non-money “inside” credit and technology increasingly spawned forms of digital money – over both of which central banks have had little influence as well. The 2008-09 global crash thus only accelerated these developments and trends already underway for decades.

Financialisation, technological change and globalisation thus have all served to reduce central banks’ ability to carry out their money supply function as well. Moreover, central banks themselves have exacerbated the trends and loss of control by embracing policies like QE, ZIRP, and NIRP which, in effect, have thrown more and more liquidity at crises – i.e. crises that were fundamentally created by excess liquidity, runaway debt, and leveraging in the first place. The solution to the last crisis – i.e. liquidity – would become the enabling cause of the next.

On money management, if this is just an injection of $25 trillion of “fiat money”, why on earth has it not resulted in massive inflation and corresponding high interest interest rates? How could fiat money produce incipient deflation and near zero interest rates?

Looks to me more like Maksakovsky’s hypertrophied credit for “forced expansion of the reproductive process” to postpone a crisis than fiat money. With the result predicted by Maksakovsky – the disproportions continue intensifying and eventual crisis that was postponed is deeper than it would have been earlier. The failure to produce even 2% inflation strongly indicates that without this “experiment” there would indeed have been (and eventually will be) deflation and a Great Depression. So what else could and should they have done? (Note “could” as well as “should”).

If they had followed “sound” policies then instead of Bretton Woods collapsing in the 1970s the system could have functioned more normally with another Great Depression then. But how could you expect them NOT to prefer postponing it for another half century?

Or is it suggested that capitalism is inherently crisis free if only central banks and governments did not keep messing things up?

Banking Supervision Function. Central banks have been no more successful in performing their third major function of banking supervision. If banks were properly supervised the current volume of NPLs would not have been allowed to grow to excessive levels. Central banks would intervene and check financial asset price bubbles before they build and burst, threatening the entire credit system and collapsing the real economy. Limited initial efforts to expand bank supervision role of central banks following the 2008 crash – such as Dodd-Frank legislation in the US and the Financial Stability Authority in the UK – have been checked and are being dismantled step by step. In Japan, bureaucratic forces have effectively stymied more bank supervision for decades and little more was done after 2008. In Europe, supervision remains largely still with national central banks. Efforts to coordinate bank supervision across central banks with the Basel II and III agreements are moribund. And nowhere have effective regulatory measures been implemented to address the huge shadow banking system, rapidly expanding online banking, or the growing role of global multinational corporations’ financial departments, which have been transforming them into de facto private banks as well.

Even ardent central banker, Stanley Fischer, vice-chair of the Federal Reserve and head of its financial stability committee, has recently declared that efforts in the US to roll back even the limited measures of Dodd-Frank to expand Fed bank supervision as “very, very dangerous”.4

Never totally responsible for bank supervision – and only one institution among several tasked with supervising the private banks – central banks have never been very successful performing bank supervision. And now that function is again weakening across many locations of the global economy.

Banking supervision has been carried out with such extraordinary vigour that they successfully prevented a complete collapse of the entire financial system by directing banks to ignore the laws that required them to mark assets to market values and simply continue unlawful trading while manifestly insolvent. This was announced with a loud fanfare as “tightened regulation”. That is taking quite extreme responsibility for effective bank supervision. No nineteenth century letter to the Bank of England ever told them to just trade while insolvent. It was the British cabinet that promised to legislate for indemnity for suspending payments while merely illiquid. Not the central bank telling other banks to just “carry on” pretending they were not insolvent.

If they had been less effective at bank supervision the entire financial system would have been declared bankrupt. That is what would have happened if they had merely enforced existing supervisory regulations, let alone tightened them.

Would it really have been more “effective” supervision to simply let “this sucker go down” since they were in fact insolvent? Does it make sense to discuss effectiveness of supervisory functions without even mentioning that the banks being “supervised” were in fact insolvent.

Wouldn’t it be more accurate to explain that if credit had not been overextended the overproduction crisis would have broken out earlier?

Was there some way that the entire course of modern finance could or should have been constrained to something more like the nineteenth century banking system with more regular crises?

The Failure to Achieve 2% Price Stability. Failing functions of lender of last resort, money supply and credit control, and banking supervision are not the only indications of central banks’ failure in recent decades, and especially since 2008. No less indicative of failure has been central banks’ inability to achieve their own publicly declared targets.

Failure to achieve their 2% price stability target has been particularly evident. Since 2008 the economies of Europe and Japan in particular have repeatedly flirted with deflation in goods and services prices. When not actually deflating, prices have either stagnated or barely rose above zero. Even the US economy, which analysts herald as performing more robustly than the others, the Fed’s preferred Personal Consumption Expenditures, or PCE, price index has consistently failed the 2% threshold. And over the longer term has steadily drifted toward 1% annual rate or less. And in recent months it has been near zero. China’s prices have performed better, but that has been mostly due to periodic booms in its housing sector and its several fiscal stimulus programmes that have accompanied its central bank’s liquidity injections policy since 2011. Despite the $25 trillion, central banks have clearly failed to achieve anything near their declared 2% price targets.

So it is rather odd to be complaining about the $25 trillion injection!

Unemployment and GDP Growth. While the ECB, BoE, and BoJ limit their targeting to a 2% price stability rule (the PBOC to 3.5%), the US Fed officially maintains that employment and economic growth are also official targets of central bank monetary policy.

But it has been mostly lip-service. Since 2015 the Fed has touted the fact of the US economy’s unemployment rate has fallen to only 4.5%. But 4.5% is not the true US unemployment rate. It is the government’s official U-3 rate, which estimates only full time permanent employment. At least an equivalent percentage of the US labour force remains unemployed in the US economy when part time, temp, and contract work – i.e. underemployment – is considered. That’s the U-6 unemployment rate which the Fed conveniently ignores. The true numbers of jobless are even higher than the U-6, when workers who never entered or drop out of the labour force are considered, or when the millions more who chose permanent disability status in lieu of unemployment are added; or when the poorly estimated growing underground economy and undocumented immigrant labour force are considered. The true US unemployment rate remains over 10%, as it does as well in Europe.

If central banks’ $25 trillion liquidity injection are measured against restoring economic growth rates, the picture fares no better. Despite the Fed’s QE, ZIRP, and related programmes, the US economy has grown since 2008 at an annual rate, in GDP terms, averaging only 60% of its pre-crisis economic average. On three separate occasions since 2010 the US economy collapsed to near zero growth for one quarter. Europe’s GDP performance has been even worse, experiencing a serious double dip recession in 2011-13, and chronic growth rates well below 1% for most of the period that followed. And Japan’s growth has been even worse than Europe’s, experiencing no less than four recessions since 2008. Only China has performed better, but most likely due once again to its significant fiscal stimulus programme of 2008-09 and additional mini-fiscal stimulus thereafter and not due to monetary policy. In 2012 every dollar of liquidity provided by the PBOC generated an equivalent dollar of real GDP growth; today, that ratio is four dollars necessary to generate one dollar of real growth.

Well of course it is “lip service”. If banks had some magic power to achieve unemployment and GDP targets, why not just have zero unemployment and 100% GDP growth per second?

Isn’t it way beyond time to start discussing how to replace capitalism rather than blaming central banks for its problems?

Monetary Policy Tools’ Effectiveness. With the 2008-09 global crash, it became almost immediately evident that central banks’ traditional monetary tools, like open market operations bond buying and reserve requirement adjustments, were seriously deficient for both bailing out banks and assisting economic recovery. New, more radical policy tools were introduced – specifically QE, ZIRP and then NIRP. How effective have the new tools been, one might ask?

While they reflated part of the banking system no doubt, the negative costs of the QE-ZIRP-NIRP have risen steadily since 2008. Much of the QE driven liquidity – especially direct buying of investors’ subprimes by the Fed and ECB-BOJ purchases of corporate bonds and equities – have been misdirected into financial asset markets rather than real investment, redistributed to shareholders, diverted offshore, or remain hoarded on corporate balance sheets. Both real productivity and real goods and services prices have stagnated, while financial asset prices have bubbled – especially in equities, high yield corporate bonds, and derivatives like exchange traded funds (ETFs). The nine years of near zero interest rates have devastated fixed income households’ savings. Retirees’ incomes in particular have stagnated and declined, while capital gains incomes of investors and speculators have accelerated. That does not portend well for sustained household consumption.

Central banks’ chronic low rates have been fueling a new “debt bomb” worldwide, not just in the advanced economies but increasingly in emerging markets as well.

The long term QE-ZIRP has also been distorting various markets. Pension funds and insurance annuities have not recovered due to the chronic low rates of return, and are poorly positioned now for the next recession and crisis. Low rates have encouraged excessive corporate bond debt issuance, which has not flowed into real investment and productivity or wage incomes. In the US alone, corporate debt has exceeded $6 trillion in the past six years. Central banks’ chronic low rates have been fueling a new “debt bomb” worldwide, not just in the advanced economies but increasingly in emerging markets as well. Not least, the low rate regime for nearly a decade has seriously neutralised interest rates as a potential central bank tool on hand when the next recession occurs within the next few years.

Yep, so jack up interest rates and bring on a good old Great Depression! I’m sure the Tea Party and Koch brothers are quite right in demanding such measures from their point of view. But there are reasons why less extreme right wingers fear that workers might not put up with it.

As the world’s primary central bank, the Fed has been desperate to raise rates in order to restore a policy tool cushion before the next crisis. Central banks in Europe and Japan are waiting to follow suit, to raise their rates and sell off their balance sheets, but will not do so until the Fed does more convincingly in the coming months. Due to new forces dominant in the 21st century, however, the Fed and other central banks may not be able to raise rates much higher (or significantly reduce balance sheets that will have the similar effect on rate hikes).

My impression is that they have in fact been desperate for Governments to run fiscal deficits and take some of the debt off their balance sheets. If they were desperate to raise rates themselves they would just dump some of the treasuries off their bloated balance sheets.

It is this writer’s view that the Fed will not be able to raise its benchmark federal funds rate above 2%, or push the longer term 10 year Treasury bond yield (rate) above 3%, without precipitating another major credit crisis. And if the Fed cannot, the other central banks will not as well. Monetary policy may be already neutralised for the next recession and crisis.

That sounds plausible to me (and I gather also to many others, which is worrying). So what are they likely to try to do when the crisis does break out?

I will omit the rest, mainly about the “financial elite”, including:

“It is almost certain Cohn will replace current Fed chair Janet Yellen when her term expires next February, thus further solidifying that control.”

It is “almost certain” that there is no point commenting further when an article on central banking ends up so certain all that is needed is fulminations against the “financial elite”.

I expect that one day there will be a movement preparing for what will either be the next stage of capitalism or the first stage of transition from capitalism as a result of global crisis and it will then be possible to have serious discussions about finance, banking and other issues with a view to transforming them or at least understanding how others are transforming them and how to respond.

I hope to eventually study central banking with a view to contributing. Meanwhile this sort of material serves mainly as a reminder of how necessary it is to have something more plausible to say.

 

 

 

 

 

 

 

Jack Rasmus

September 17, 2017

By Jack Rasmus

(In this article, just published in the World Financial Review (London), Dr. Jack Rasmus comprehensively elaborates on the failures of global central banks’ nine-year experiment since 2008, their inevitable transformation, and ultimately, their survival beyond the mid-21st century. The article is based upon research and conclusions in Dr. Rasmus’s just published latest book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017, which is now publicly available in bookstores, on Amazon, and from this blog.)

“After nearly nine years of a radical experiment injecting tens of trillions of dollars and dollar equivalent currency into their economies, the major central banks of the advanced economies – the Federal Reserve (Fed), Bank of England (BoE), European Central Bank (ECB), Bank of Japan (BoJ), and the People’s Bank of China (PBOC) – appear headed toward reversing the policy…

View original post 4,200 more words

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