Thursday, October 15, 2015

Central Banks Can't Save The World Anymore

For anyone reading this blog for any length of time you know we have written quite a bit about how the Central Banks of the world (the US Federal Reserve) create money out of thin air by BUYING their respective government's Treasury Bonds.

Logic tells us that if creating wealth was as simple as printing paper money and/or making entries with $000's in it into a banks balance sheet...then there would be no poor people in all the world because every government would simply print enough money to give everyone all that they need!

Of course that's NOT the way it works.  But every once in a while certain nations start to believe that they CAN do it this way.

Witness the massive money printing and bond buying that has gone on since 2008 when the entire global financial system almost collapsed.

So if we have another collapse soon, will the Central Banks be able to keep printing money and save us all again??

I'm gonna

Central bank cavalry can no longer save the world

In 2008 central banks, led by the Federal Reserve, rode to the rescue of the global financial system. Seven years on and trillions of dollars later they no longer have the answers and may even represent a major risk for the global economy.

A report by the Group of Thirty, an international body led by former European Central Bank chief Jean-Claude Trichet, warned on Saturday that zero rates and money printing were not sufficient to revive economic growth and risked becoming semi-permanent measures.

"Central banks have described their actions as 'buying time' for governments to finally resolve the crisis... But time is wearing on, and (bond) purchases have had their price," the report said.

In the United States, the Federal Reserve ended its bond purchase program in 2014, and had been expected to raise interest rates from zero as early as June 2015.

But it may struggle to implement its first hike in almost 10 years by the end of the year. Market pricing in interest rate futures puts a hike in March 2016.

The Bank of England has also delayed, while the European Central Bank looks set to implement another round of quantitative easing, as does the Bank of Japan which has been stuck in some form of quantitative easing since 2001.

Reuters calculates that central banks in those four countries alone have spent around $7 trillion in bond purchases.

The flow of easy money has inflated asset prices like stocks and housing in many countries even as they failed to stimulate economic growth. With growth estimates trending lower and easy money increasing company leverage, the specter of a debt trap is now haunting advanced economies, the Group of Thirty said.

The Fed has pledged that when it does hike rates, it will be at a slow pace so as not to strangle the U.S. economic recovery, one of the longest, but weakest on record in the post-war period. Yet, forecasts by one regional Fed president shows he expects negative rates in 2016.


You see friends, it's one thing to allow the Central Banks to act as shock absorbers to the economy by tightening and releasing the money supply, but it's totally unsustainable when we expect the Central Banks to become the entire engine of the economy by creating money out of thin air and expecting that scheme to work for years and years.

We may be coming to a painful realization of this sometime soon because one of the signs that things are  way out of whack is when all the bankers and Wall Streets of the world stare at the Federal Reserve for ANY HINT on when they are going to raise interest rates...and the stock market will collapse or soar based on the news that they will or won't raise rates.

Should the money shamans of our day really have that much power?

Jesus tells us that we can't worship Mammon (money) and God at the same time.  That's true...and what does America worship?...and WHO does America despise these days?....Jesus?

Matthew 6:24
“No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.


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