Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros! - 2nd July 15
Greece Debt Crisis Trigger for Stock Market Crash or Bull Rally? Video - 1st July 15
Gold Stocks Break Below 2008 Low - 1st July 15
SPX Stock Market Retracement May be Over - 1st July 15
Silver Tunnel Vision 'Experts' - 1st July 15
Gold And Silver - Monthly, Quarterly Ending Analysis - 1st July 15
Europe’s Controlled Demolition - 1st July 15
The End of Dow 18,000; Bailouts No Longer Extended  - 1st July 15
Athens Mayor: Greek Government Should Resign - 1st July 15
China Stocks - This Is What a Bubble Looks Like - 30th June 15
Stocks Plunge on Greece Euro-Zone Financial Armageddon Blackmail - 30th June 15
Greece Crisis Shows Importance of Gold as Europeans Buy Coins and Bars - 30th June 15
Stock Investors Express Route to Profits in the Healthcare Sector - 30th June 15
Beyond the Greek Impasse - 30th June 15
Gold GDXJ : Impulse Move Pending - 30th June 15
Fed Interest Rate Increase Could Be Best Thing to Happen to Gold - 30th June 15
Marc Faber - Greece is Basically Bankrupt - 30th June 15
Greece - Shoot the Dog and Sell the Farm - 29th June 15
Grexit?, BIS Warning, Chinese Market Crash & Systemic Risk Shake the Global Economy - 29th June 15
The New "Sharing Economy" May Not Be the Profit Bonanza Everyone's Expecting - 29th June 15
Gold and Silver Greece and Short Positions - 29th June 15
Volatility and Sleep-Walking Markets - 29th June 15
Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - 29th June 15
Stock Market More Decline Ahead? - 29th June 15
China Stock Market Crackup - The Final Trap Looms... - 29th June 15
Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - 28th June 15
Investor Stock Play for Two Growing Missile Threats - 28th June 15
Stock Market Uptrend/downtrend Inflection Point - 27th June 15
Greece Crisis OXI - 27th June 15
Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - 27th June 15
It’s Time to Change the Way You Look at Disney Forever - 27th June 15
Flatline Investing and Dead End Debt Schemes - 27th June 15
Stock Market Investors Avoid the "Herd" Like the Plague - 26th June 15
Extreme Gold/Silver Shorting - 26th June 15
USD Daily, Weekly, Monthly & Conclusions - 26th June 15
Gold Price Target of USD 2,300 - 26th June 15
Gold and Silver - Another Successful Option Expiration For the Insiders - 26th June 15
Why Buffett Bet A Billion On Solar Energy - 26th June 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

Superheroes of Central Banking Destroying Money By Printing it to Excess

Interest-Rates / Quantitative Easing Apr 24, 2012 - 01:34 AM GMT

By: Adrian_Ash

Interest-Rates

Best Financial Markets Analysis ArticleEccentric yes, but central bankers are a long way from playboy billionaire geniuses with hidden superpowers...

SO CENTRAL BANKERS still can't leap tall buildings in a single bound then.



"Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the US economy," confessed US Fed chairman Ben Bernanke last October. "There's a limit to what monetary policy can hope to achieve," agreed the Bank of England's Mervyn King the following month. "Monetary policy cannot do everything," sighed the ECB's Mario Draghi, speaking to the Financial Times in December.

Okay, so these guys are a long way from that "group of remarkable people" brought together by Samuel L.Jackson's growl "to fight the battles we never could" in the new Marvel Avengers movie. But couldn't they at least wear their underpants outside their trousers?

"Maintaining price stability and financial system stability are important goals of central banks," added Bank of Japan boss Masaaki Shirakawa at the start of this year, "but central banks are not able to solve all problems, especially in an economy characterized by zero interest rates and deleveraging."

Such pessimism surely jars with central banking's awesome powers. A century ago, before the gamma ray accident, "the Gold Standard determine[d] the money supply," as Dr.Bernanke told his George Washington students (and anyone who'd listen on the internet) last month. So "there [was] not much scope for the central bank to use monetary policy to stabilize the economy."

Yet today, central-banking-policy-man still finds himself unable to fix the economy, even though both the cost of money and its supply now lie entirely within his gift. Here sit Bernanke, Draghi, Shirakawa and King – not a laser-glove between them – unable to reverse the spin of the earth on its axis. But they can make it spin faster.

"Of course, the inflation forecast is higher now than it was...precisely because rightly we did more QE," declared Bank of England policy voter Adam Posen in one of two newspaper interviews on Thursday last week. You'll note that word "rightly". The arch-dove of Threadneedle Street, Posen this month failed to vote for yet more quantitative easing – a decision he feels he should come out and defend in public. Twice. Not because anyone thinks he should have printed more money instead, pulling the big lever marked "inflate" to buy more government bonds, push up gilt prices, and drive down interest rates further below the pace of inflation. No, Posen chose to defend his "no change" vote because it was so out of character.

After joining the Bank of England's policy committee in Sept. 2009, Adam Posen voted to expand the UK's money-creation scheme at 16 of the 31 meetings he attended to March 2012. His fellow policymakers backed his call only twice, but that was enough to take the total up to £325 billion – well over 20% of the UK's annual economy, and equal to more than one third of all the UK government debt now in issue.

The effect? Never mind that Posen finally changed his vote this April. As his governor and the other 3 chief central bankers above all confess, creating money and handing it straight to the banks did nothing to fix the economy. But the one sure outcome, as Posen noted this week, was to send Consumer Price inflation sharply higher – well above the Bank of England's official 2.0% annual target in fact, and sharply above its 10- and 20-year averages, too.

Indeed, on the old, more comprehensive Retail Price Index, inflation has accelerated across the board since March 2009, when "quantitative easing" was first applied in the UK. It shot higher from its one- and two-decade averages in 11 of the 14 separate item categories compiled by the official data agency (food, clothing & footwear, household services etc). Excluding mortgage-interest payments, the once-authoritative RPIX index has risen 4.5% per annum since March 2009 against 3.1% since 1992 and 3.4% since 2002.

Is anyone amazed by such exploits? Exploding the money supply can't be guaranteed to destroy the value of cash, as Japan's experience over the last decade shows. But crushing the purchasing power of people's income and savings is a more certain power for central bankers to summon up than anything else. Because in the final analysis, "under a paper-money system, a determined government can always generate higher spending and hence positive inflation," as Ben Bernanke concluded his infamous "Deflation" speech of Nov. 2002.

Destroying money by printing it to excess is easy. The truly superhuman task will be killing inflation after it's really shown up.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History