Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Presidential Election Forecast Matrix, Stock Market Uncertainty - 29th Oct 20
Stock Market Turning? Look For These Support Levels - 29th Oct 20
Silver: A Conceivable Dead-Cat-Bounce on the Cards - 29th Oct 20
Stocks are Strong but be Aware of this Continuing Pattern - 29th Oct 20
The Most Profitable Way To Play The Gold Boom - 29th Oct 20
Why You Should Hire An Accountant To Complete Your Tax Return - 29th Oct 20
Global Banking: Some Sectors Look as "Precarious as Ever" - 28th Oct 20
Silver Price Minor Dip Possible Before 2nd Major Upleg Starts - 28th Oct 20
�� How to Carve a Simple and Scary Pumpkin Face for Covid Halloween 2020 �� - 28th Oct 20
Gold Price One Last Dip Likely Then Major Upleg to New Highs - 28th Oct 20
Smart Money Is Going All-In On This New Gold Frontier - 28th Oct 20
Gold Stocks Still Correcting - 27th Oct 20
Gold and Crypto: Is This How Charts Look Before A Monetary Collapse? - 27th Oct 20
Silver's Coming Double Trigger Shotgun Price Explosion - 27th Oct 20
The $126 Billion Gold Opportunity in Australia - 27th Oct 20
Tips to Breeze through Your Spanish Classes Online - 27th Oct 20
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Central Bank Lullaby

Politics / US Federal Reserve Bank Mar 27, 2013 - 01:10 PM GMT

By: Brady_Willett

Politics

Rock-a-bye baby, on the treetop,
When the wind blows, the cradle will rock,
When the bough breaks, the cradle will fall,
And down will come baby, cradle and all.

Why is a song about a severely injured baby and smashed cradle sung to children at night to lull them to sleep? Apparently, because If you sing this popular lullaby often enough the nonsensical violence in the storyline fades and the rhythmically appealing sounds endure.


A similar contradiction is apparent when it comes to central banks and quantitative easing (or money printing). Historically regarded as a desperate act that risked unleashing a currency collapse, money printing is not a vocation that central bankers usually aspire to. However, after years of experimenting with increasingly extravagant QE jingles, today money printing is the soothing melody that tucks investors in at night.

"Central banks have saved the day! - So why not keep printing anyway?"

The Specific Storylines

Assuming government procured inflation numbers remain tame, Bernanke and company are going to print and buy stuff until the U.S. unemployment rate drops to at least 6.5%. Ignoring the fact that savers are being crushed by these policies and no evidence exists that money printing can create jobs, this song sounds wonderful.

Next is the ECB, which unleashed the prospect of 'unlimited' (money printing) late last year. Due to unsustainable debt and anemic growth, bailouts and austerity are not about to go gently into the good night in euro-land. Nevertheless, 'unlimited' had a ring to it that all previous musical scores from the ECB since 2010 lacked. Suddenly, those parties speculating on sovereign default(s) have been lulled to sleep, and, as Sir Alan Greenspan recently put it, the 'tail risks' in the euro-zone crisis have been removed (the recent Cyprus kerfuffle notwithstanding).

Finally, there is Japan, where former and current Prime Minister, Shinzo Abe, pledged to use "unlimited easing" to get inflation running at 2%. To counter the fact that as Prime Minister he does not have his hand on the presses, Abe "threatened to take legislative action to force the bank's hand if it doesn't act on its own" (WSJ). In response to this aggression the Yen plummeted, the Nikkei soared, and fears of Japan's structural deflation and gargantuan debt-load ebbed...

Suffice to say, as the central banks in control of big three (the dollar, Euro, and Yen) vie to print first and worry about consequences later, this has helped raise central bank reserves to nearly $11 trillion, or "more than four times as much as global hedge funds" (FT). These massive and expanding reserves provide some assurances that your average financial crisis will not transpire. After all, how can any major asset class or systemically important financial entity collapse given the crazed print-first look in central banker's eyes?

But while today's print-fest provides an aura of safety for paper assets, it also has awakened concern of 'currency wars'.

Rock-a-bye baby, on the treetop

More than 4-years into zero percent territory and the Fed's balance sheet is still expanding to record highs ($3.189 trillion as of March 20, 2013). Bernanke confirmed last week that the Fed will continue to print, he isn't worried about a stock bubble, and, despite Cyprus, "At this point, we're not seeing a major risk to the U.S. financial system or the U.S. economy". With the Fed unable to anticipate the last two major financial calamities common sense says these trends are cause for alarm rather than applause. Unfortunately common sense is no match for the artificial glow of rising asset prices and falling interest rates...

Once today's euphoric hum of printing presses fades the injured babies and smashed cradles are sure to arrive. After all, the very idea that central banks can press print and solve economic and financial market problems is a baby on the treetop fairytale. But before the next calamity is triggered - before the real currency mayhem is unleashed - it is important to note that the growing cult of QE represents a worldwide currency union rather than war. Try as they might, central bankers do not yet have the right weaponry to attack the author of the Central Bank Lullaby.

Central bank’ darlings, piling up the loot,
When all else fails they operate in cahoots,
When the delusions break, fiat will fall,
And down will central banks, asset prices and all

BWillett@fallstreet.com

By Brady Willett
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.


© 2005-2019 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

6 Critical Money Making Rules