Central Banks

 

Banks Increasingly Refuse Cash Withdrawals – Switzerland Joins the Fun

The war on cash is proliferating globally. It appears that the private members of the world’s banking cartels are increasingly joining the fun, even if it means trampling on the rights of their customers.

Yesterday we came across an article at Zerohedge, in which Dr. Salerno of the Mises Institute notes that JP Morgan Chase has apparently joined the “war on cash”, by “restricting the use of cash in selected markets, restricting borrowers from making cash payments on credit cards, mortgages, equity lines and auto loans, as well as prohibiting storage of cash in safe deposit boxes”.

This reminded us immediately that we have just come across another small article in the local European press (courtesy of Dan Popescu), in which a Swiss pension fund manager discusses his plight with the SNB’s bizarre negative interest rate policy. In Switzerland this policy has long ago led to negative deposit rates at the commercial banks as well. The difference to other jurisdictions is however that negative interest rates have become so pronounced, that it is by now worth it to simply withdraw one’s cash and put it into an insured vault.

Having realized this, said pension fund manager, after calculating that he would save at least 25,000 CHF per year on every CHF 10 m. deposit by putting the cash into a vault, told his bank that he was about to make a rather big withdrawal very soon. After all, as a pension fund manager he has a fiduciary duty to his clients, and if he can save money based on a technicality, he has to do it.

 

snb2

Swiss National Bank headquarters

Photo credit: Daniel Rohr

 

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Yet Another Delusional Bubble Blower

Canada is home to one of the most egregious housing and credit bubbles in the world – a legacy of its former central bank governor Mark Carney, who is now blowing a similarly dangerous bubble in the UK as governor of the Bank of England. For some background information on this, see:

Carney’s Legacy: Canada’s Credit and Housing Bubble

Mark Carney: If There is a Bubble, It’s Not Our Fault

A Tale of Two Bubbles

 

poloz

Stephen Poloz, the new bubble blower at the helm of the Bank of Canada. He does look a bit loopy actually.

Photo via vida.org

 

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One Bad Idea After Another

Ben Bernanke is frequently in the news these days. The latest occasion concerns his opinion on the Fed’s “inflation” target, i.e., the target for the speed at which money should be debased relative to consumer goods in order to finally attain centrally planned economic nirvana.

Price inflation is currently deemed to be “too low” by our bien pensants, in spite of the fact that the broad US money supply TMS-2 has more than doubled since 2008 (as of March, it is very close to $11 trillion, up from $5.3 trn. in early 2008). If recent CPI data are to be believed (which requires a bit of a leap of faith), consumers may actually get slightly more goods and services for their money henceforth. What an unimaginable horror!

 

CPICPI dips ever so slightly into negative territory year-on-year – the nightmare of central planners around the world – click to enlarge.

 

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Ben “I Didn’t See It Coming” Bernanke Hired by Big Hedge Fund

Ben Bernanke is not only blogging now and thereby making an unwelcome contribution to lowering the citizenry’s aggregate economic intelligence, he has also decided to once again follow in the footsteps of his predecessor, “Maestro” Alan Greenspan, by joining a hedge fund. Bernanke is calling in some markers and is about to cash in by becoming an advisor to the Citadel Group, the world’s most highly leveraged large hedge fund and HFT shop.

 

 

citlogo

 

 

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Euthanasia of the Rentiers

Ben Bernanke presided over the Federal Reserve for two terms, from 2006 through 2014. A year and half into his first term, he began driving the Federal Funds Rate down. By the end of his frantic interest episode, this key overnight lending benchmark had been crushed. It hit bottom, and it hasn’t sprung back in over 6 years since.

Everyone is harmed by zero interest policy. Who suffers the most is open to debate, but one obvious candidate is the retiree who lives on a fixed income. These are people who worked and saved their whole lives, and now they depend on interest to buy groceries and heat their homes. For them, zero interest is like breathing air without oxygen. They suffer a slow death by suffocation.

In writing about this class of people, economist John Maynard Keynes used a term he intended to be pejorative—the rentier. In Keynes’ view, those who invest capital to earn a yield are parasites. In The General Theory of Employment, Interest, and Money, he asserted that the rentier is a “functionless investor” (i.e., gets paid for doing nothing). Keynes called for “the euthanasia of the rentier” by government suppression of the interest rate.

Recently, former Federal Reserve Chairman Ben Bernanke has begun blogging at the Brookings Institution. He wrote that legislators said he was “throwing seniors under the bus.” He reassures us that he “was concerned about those seniors as well.”

That is a neat little example of context-switching. These unnamed legislators did not ask Chairman Bernanke how he felt as he was throwing senior citizens under the bus. His feelings are not the issue. The issue is whether zero interest does, in fact, throw seniors and other rentiers under the bus. Bernanke can’t deny that, and he doesn’t try.

Instead, he offers this, “But if the goal was for retirees to enjoy sustainably higher real returns, then the Fed’s raising interest rates prematurely would have been exactly the wrong thing to do.” Got that? We have to keep interest low, so seniors can earn more interest.

 

BEN BERNANKE-AP_0Ben Bernanke, the man with feelings for seniors. As he points out here, he knows at least two of them personally.

Photo credit: Alex Brandon / AP Photo

 

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Crazy for Yield

A case of bad timing …

 

2nd1

Cartoon by Eric Allie

 

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Bernanke’s First Blog Post

By now it has probably made the rounds that Ben Bernanke has joined the “blogosphere” by beginning to write his own blog at the Brookings Institute. After reading his first post there, we couldn’t resist to comment. The article is entitled “Why are interest rates so low?”. Perhaps not surprisingly, it turns out that it is essentially a long-winded apologia for the Fed’s interventionist policies.

At one point Bernanke e.g. deems it necessary to once again defend himself against a complaint voiced by a legislator, namely that the FOMC has “thrown seniors under the bus” by cutting rates to zero. Bernanke is assuring us that “I was concerned about those seniors as well”. It could be that seniors will be happy to hear it. However, the return they get on their savings remains zilch to this day, so we doubt it will be much of a consolation to them that Bernanke professes to have been concerned. He also tries to refute the fact that the Fed’s interventions are distorting markets (i.e., he refuses to admit that it is blowing one bubble after another).

It is interesting that Bernanke is launching into a justification of Fed policies in his very first post already. Reading it, we felt reminded of one of his previous attempts to exonerate the Fed, when he argued that the housing bubble was the result of “too lax regulations”, and had definitely nothing to do with the Fed’s interest rate policies. Among other things, he neglected to mention in that particular speech that the housing bubble was actually concentrated in one of the most highly regulated sectors of the economy.

 

130226145301-ben-bernanke-hearing-620xaBen Bernanke: honest injun, we’re completely innocent! We only do good manipulations! The markets do the bad stuff all by themselves.

Photo credit: Getty Images

 

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Does the Dollar Hold Enough Attraction to Break Out and Hold at Higher Levels?

Now is the time to begin looking at the US dollar’s re-ascendance in a different light as we approach 1:1 against the euro. Shorter term we have to expect some possible panics around flat global growth in the face of a strong dollar. Historically, as we saw in the 1980s in Latin America, US dollar rebounds lead to blow-ups among the weaker global credits, just at the point where the dollar begins a breakout not seen in decades. But, times have also changed and we should expect this round of the dollar beating up some countries to slow earlier than perhaps what we saw in the days of the symbolic Reagan induced fall of the Berlin Wall.

 

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Photo credit: Bloomberg News

 

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Policy Adjectives

The big news this week was that the Fed dropped its pledge to be “patient” in raising interest rates. The Fed wants to get the market used to the idea of higher rates sometime in the not so distant future.

But just so you are clear on how valuable this “forward guidance” is, Fed chief Janet Yellen later told reporters, “Just because we removed the word patient from the statement doesn’t mean we are going to be impatient.”

Patient and impatient are not the only possibilities. In between is a vast space in which one can get things done, but without being in a hurry about it. Besides, we can think of many other adjectives that far better describe Yellen’s position – fearful, ignorant, conceited, arrogant, trapped …

 

BN-GB582_yellen_G_20141217162234The markets in thrall to Ms. Yellen’s language games

Photo credit: Bloomberg

 

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“Oh”, or Aiming for a Career on Wall Street

Fátima, our new 10-year-old English-language student, is a stranger to modern economics… as well as to vernacular English.

“What do you think of central bank policies?” we asked.

“What’s a central bank?”

“It’s the bank that provides money to the other banks.”

“Where do they get the money?”

“They create it out of nothing.”

“Oh.”

“Would you like some money from the central bank?”

“I guess so.”

Fátima must be aiming for a career on Wall Street.

 

yellen teaching draghi how to print money funny photoRecent developments indicate he’s got it …

Cartoon via tradingblog.nl

 

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How to Blunt the Absence of a Sentence

Wall Street’s Kremlinologists were not baffled for long. Shortly after the FOMC statement was released, the US dollar tanked and everything that wasn’t nailed down soared in price. Essentially the FOMC has repeated the exercise it first engaged in when it removed the phrase “considerable time” from its statement to replace it with the word “patient”, only in a slightly more wordy manner this time. Essentially, the monetary policy statement was as dovish as it could possibly be in light of the corner Fed board members have talked themselves into with their vaunted communication policy.

The differences between the January and the March statements can be seen at the WSJ’s statement tracker. Apart from an outright assurance that there won’t be a rate hike in April, it was mentioned that the timing of a possible hike thereafter remains uncertain. The remainder of the statement reads a bit like a long lament over the economy’s refusal to obey. Somehow, all the pumping that has occurred thus far hasn’t had much of an effect. Obviously, there was no indication that any of the board members realize that money printing is actually undermining the economy.

 

www.usnews.com

Photo credit: Andrew Harrer / Bloomberg / Getty Images

 

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Eager to Wreak Havoc

Life on the ranch: Fatima, a girl of 10, has asked to learn English. She wants to be able to talk to an aunt who lives in New York. What an unexpected pleasure – for us, not for her – it is to give her lessons. We’ll let you know how it goes. Now, back on our financial beat …

Wow! We never thought we’d have so much help from central bankers. At the start of 2010, for example, we announced our new “Trade of the Decade.” The idea: Sell short Japanese government bonds, which are doomed, and buy Japanese stocks, which are likely to catch a break after decades in the doghouse.

In the event, the break the Japanese stock market caught came to it from the Bank of Japan – more eager than ever to wreak havoc on the economy and its financial markets.

 

NikkeiThe Nikkei has been on a tear for the past three years – click to enlarge.

 

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Linguistic Perversions

While the whole world is waiting with bated breath whether the bureaucrats running the Federal Reserve will alter, remove or retain a single adjective in their monetary policy statement today, it occurred to us to think a bit about the use of language in the context of economics and financial markets.

Many a word has seen its true meaning altered in our Orwellian age. One example we frequently cite in these pages is the term “inflation”. It once used to mean only one thing: An increase in the supply of money. It is the only way in which the term actually makes logical sense. And yet, in modern times its meaning has been altered to designate what is in fact only one of the many possible consequences of inflation, namely rising prices of consumer goods.

As Ludwig von Mises pointed out, this means that we actually no longer have a single word to describe what the term “inflation” once used to describe. By calling rising prices “inflation”, sight is lost of the root cause of rising prices. This is of course deliberate, as the instigators of inflation are now no longer seen for what they truly are. As a result of this it has become fashionable to call central banks “inflation fighters”. This is akin to calling an armed robber a saint, or calling an arsonist a firefighter.

 

ecb1Police are erecting barbed wire fences around the ECB’s new headquarter in Frankfurt.

Photo credit: Kai Pfaffenbach / Reuters

 

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Bear Markets Do Happen

Today… the second of the speech about the end of the world we recently gave at Doug Casey’s La Estancia de Cafayate. (You can catch up on the first part here.) As Yogi Berra would say, America is going to come to a fork in the road… and it’s going to take it.

Right now, the Fed isn’t as aggressive as the European Central Bank (which is set to pump €1.2 trillion into the financial markets by way of its QE program) or as innovative as the Bank of Japan (which is buying stock market funds as well as bonds by way of its QE).

 

LENINE2

Vladimir Ilyich Ulyanov, a.k.a. Lenin, addresses a crowd in St. Petersburg in April 1917

Photo via Wikimedia Commons

 

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John Dizard Has the Right Idea

John Dizard is one of the few FT columnists we actually like to read (much of the paper’s editorial line consists of boring, if in our opinion dangerous, Keynesian shibboleths). Anyway, Mr. Dizard’s most recent column doesn’t disappoint. It contains what is known as “actionable advice” and is entitled “Embrace the contradictions of QE and sell all the good stuff”. It starts with a quote attributed to New York based short seller Ben Smith, reportedly uttered in the fall of 1929: “Sell ’em all! They’re not worth anything!”

 

the dog gets it

Bail-out or not, one way or another it’s eventually going to become a default …

Photo via desicomments.com

 

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