Central Banks




Knave or Fool?

WATERFORD, Ireland – Markets were calm on Monday. Investors wanted to panic, as usual, but didn’t know what direction to take.

We’re not sure either. On the one hand, the world economy is slowing down. On the other, Mario Draghi has announced again that he – not willing buyers and sellers – will determine consumer prices.


DraghiMario Draghi, the monetary crank currently heading the ECB. We are not dispensing this insult (or let us better say: this objective description) of the man willy-nilly. The hoary inflationism he propagates was unmasked as the hallmark of monetary crankery more than a century ago already. Somehow it has become the “economic orthodoxy” of the centrally planned fiat money system and the welfare states that are hosting it.

Photo credit: Picture Alliance / DPA


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What is Judgment Day?

It is like ancient times that the Feds, under Greenspan, somehow decided that US needed to follow a zero interest rate policy, a policy now known as the ZIRP.  It was 2008 when Bernanke gave birth to the term Quantitative Easing, QE. QE was followed by Operation Twist, and its sequels – QE2 and QE3.

The new buzzword is “normalization”.  Normalization is the reversal of the QE operations and the raising of interest rates to above zero.  Whether we agree or disagree is irrelevant.  The fact is that the BLS just declared the unemployment rate is at 5%, a level that should justify initiating the normalization process starting with the next FOMC meeting in December. In other words, judgment day is at hand.


judayBatten down the hatches, judgment day approacheth

Image credit: World Wrestling Entertainment (WWE)


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Cries for Going Totally Crazy are Intensifying

What are the basic requirements for becoming the chief economist of the IMF? Judging from what we have seen so far, the person concerned has to be a died-in-the-wool statist and fully agree with the (neo-) Keynesian faith, i.e., he or she has to support more of the same hoary inflationism that has never worked in recorded history anywhere. In other words, to qualify for that fat 100% tax-free salary (ironically paid for by assorted tax serfs), one has to be in favor of central economic planning and support policies fully in line with today’s economically illiterate orthodoxy. Meet Maurice Obstfeld, who has just taken the mantle.


BN-JL827_Obstfe_M_20150720120520New IMF chief economist Maurice Obstfeld (left) and fellow monetary crank Haruhiko “Peter Pan” Kuroda, governor of the BoJ

Photo credit: Yoshikazu Tsuno / AFP


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Checking the Balance Sheet


“Through the door there came familiar laughter
I saw your face and heard you call my name
Oh, my friend we’re older but no wiser
For in our hearts the dreams are still the same
Those were the days”


– “Those Were the Days” by Gene Raskin


POITOU, France – Yes, they were good years… 1980-2015. We laughed. We cried. We got married. We raised children. We bought houses. We made money. Whose life has not been improved since the end of the 1970s?

Reagan’s “Morning in America.” Then the Clinton Years. Finally, George W. Bush’s “Fin de Bubble” era. Who is not older and better off (or at least older) than he was when the era began? Should we just stop there, happy to have had such a wonderful time together?


ReaganThe great communicator back in the day …

Photo credit: Jeff Taylor / AP


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Scandinavian NIRP Bubble

A recent article at Reuters indicates that Sweden’s central planners are beginning to worry slightly about the bubble they have caused in their (so far) vain attempt to destroy the purchasing power of the Swedish crown in terms of consumer goods. They have instituted a giant QE program and reduced central bank lending rates below zero (an economic policy perversion if ever there was one). So the failure is certainly not for lack of trying, as the charts below illustrate.

While the “well-intentioned” plan to impoverish Sweden’s consumers by reducing their real incomes has failed, relative prices have of course been distorted enormously. Price inflation is simply showing up in asset prices, primarily real estate prices, in which a bubble of truly breathtaking proportions is underway.


1-Sweden, property pricesZIRP and later NIRP-induced lunacy in Sweden, as evidenced by a parabolic increase in property prices. Note that these data are as of Q1 (the most recent chart we could find). In the meantime, prices have shot up further. The latest annual rate of change amounts to 20% – click to enlarge.


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Divided Opinions

POITOU, France – Last week, young colleagues at Bonner & Partners HQ in Delray Beach, Florida, put us on the spot.

“What do we stand for as a publishing business?” they asked. “Who are we? How are we different from anyone else? What do we think that others don’t?”

We are not the only publishers to offer opinions. And not the only ones with alternative points of view. So, to answer these questions, let’s look first at the range of opinions on offer…

First, there is “the authorities must know what they are doing… besides, I have more important things to think about” camp. This is by far the largest group: hoi polloi. The masses. The lumpenproletariat.


border collieSaved by the border collie

Cartoon by Gary Larson


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BoJ Leaves Policy Unchanged, but What Comes Next?

The Bank of Japan has employed QE programs since March of 2001 (in February of 2001, it still claimed that “QE will be ineffective” – it was right then, for the last time). These have had no effect apart from making a Keynesian government spending orgy possible that is unique in terms of its size in the post WW2 developed world. It is also unique insofar as it hasn’t yet blown up.

QE was briefly interrupted in 2006, when the BoJ reduced the monetary base by 25% within a few weeks (this barely affected the money supply, although we have to add the caveat that Japanese money supply data are not directly comparable to Western ones).


2 percent kurodaKuroda demonstrating the loony-tunes 2% fetish of modern central bankers to journalists

Photo credit: Haruyoshi Yamaguchi / Bloomberg


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