The End Of The Era Of Central Banks
It’s Sunday afternoon, and I simply don’t know where to start; as each day, there are literally a half-dozen “horrible headlines” worthy of full-time discussion. To that end, even at the height of the 2008 crisis, things didn’t look as dire as today – with literally dozens of potential “black swans” on the horizon, in an environment where, sadly, such events aren’t even necessary to catalyze the inevitable collapse of history’s largest house of cards. Unquestionably, the majority of the global financial community realizes something is very, very wrong, though the vast majority haven’t yet acted to protect themselves. However, history’s largest game of “financial musical chairs” has clearly begun; and shortly, the entire world will be desperately rushing for an infinitesimal amount of “chairs.”
Let’s just look at Russia, to give but one example of the ominously swirling ill-winds. With its currency in free-fall (yes, still); the economic and geopolitical ramifications are, at the least, terrifying. To wit, in the last 12 months, Russia (in Mitt Romney’s words, “America’s greatest geopolitical foe”) has dramatically strengthened its allegiance with America’s greatest economic foe, China; for all and intents and purposes, annexed the Crimean Peninsula amidst heavy Western opposition; cut off natural gas supplies to six Southern European nations; and introduced a new military doctrine, naming NATO – and the U.S. specifically – as its principal enemies. Scarier yet, was this weekend’s comments by Russia’s Minister of Agriculture, claiming it would exclude Greece from its European food import ban “in the event it leaves the European Union.” In other words, with Greece’s potentially cataclysmic election just a week away, Putin is clearly laying the ground to build “Soviet Union 2.0.” Such an offer will undoubtedly be viewed as an act of diplomatic war in the West – and consequently, will only heat up the expanding “Cold War 2.0.” In other words, last year’s anti-Russian sanctions are morphing into more serious acts of aggression, at a breakneck pace. And thus, when I read that the Ukraine’s President is drafting 50,000 citizens for an anti-Russian mobilization – which, as I write on Sunday evening appears to have begun – I can only cringe with fear.
Yes, Greece is just one week from an historic election, in which the “anti-austerity” (read “pro-default”) Syriza party is all but assured to take control. When it does, its leader, Alexis Tsirpas, plans to immediately demand the forgiveness of hundreds of billions of Euros of debt – which unquestionably, the Euro Zone government will refuse. After all, if Greece is allowed to default, all PIIGS would demand the same; and perhaps, “non-PIIGS” nations like France. And thus, the potential for the Euro to break apart NOW – yielding a catastrophic daisy chain of debt defaults, derivative implosions, currency crashes, and social and geopolitical unrest, has reached “Defcon 1” levels. Already, we are witnessing runs on Greece’s largest banks, and its citizens have stopped paying taxes in anticipation of a “debt jubilee” and currency devaluation, when Greece inevitably abandons the Euro for a new Drachma. Under such conditions, even the most arrogant Central banks cannot stop – or even slow – the “unstoppable tsunami of reality”; and in the case of the Swiss National Bank last week, can be entirely “overwhelmed.”
This is why it’s so incredible that the “evil troika” of Washington, Wall Street, and the MSM – aided by their counterparts in Europe, Japan, and other “leading” nations – have been able to create a “meme” that printing money is a positive development. Much less, as all previous efforts have failed. Fortunately, said “tsunami” cannot be stopped, as it was unleashed by the indomitable “Economic Mother Nature” herself. And thus, one by one, the dominoes are falling – as exemplified by the SNB announcement last week, and comments like these from one of the world’s largest “TBTF” banks, Deutschebank.
“We doubt inflation expectations will spike sustainably higher on any announcement (at this Thursday’s ECB meeting) given the failed history lessons of US and Japan, as well as doubts about QE making a difference quickly in the Euro zone.”
Let alone, those of people actually operating in the real Main Street economy; such as these last week from the CEO of Lennar, one of America’s largest home-builders.
“Across the board, we’re seeing intensified competition as builders go out and chase volume.”
Thus far, “TBTF” banks haven’t left the trough of free money – prompting the majority of their commentary to mirror the propagandist cheerleading of Central bank puppets like Janet Yellen; who, laughably, believes the historic oil price crash is “transitory.” Heck, even as the Vampire Squid itself, Goldman Sachs, issued a disappointing earnings report Friday, its criminal CEO uttered the “lie to end all lies” of the state of the economy – which ultimately, will sit atop the all-time list of hubristic “last words.”
“We see evidence of a continued pick up in momentum for the global economy that will improve the opportunity set for 2015.”
Again, under the category of “How dumb do they think we are?,” what part of this chart suggests a “pick up in momentum?” Or Friday’s negative industrial production report? Or multi-decade lows in most commodities and currencies? Or all-time low bond yields in the majority of the Western world? Unless, of course, he is referring to downside momentum – backed by an “opportunity set” structured to benefit from the world’s misery!
Of course, as the “end of the era of Central banks” intensifies, even the Goldman Sachs’ of the world will be running for cover – realizing that when their benefactors at the Fed and on Capital Hill are bankrupt, they are no longer too big to fail. Heck, even Goldmanprobably “believes its own BS” about Central banks being in control, capable of navigating even the roughest of financial and economic waters. That is they did, until the Bank of Japan lost control subjectively, and the Swiss national bank objectively.
Even the SNB’s arrogant leaders – like “Lady Macbeth” Thomas Jordan, who “doth protest too much” against gold’s value – all but admitted its policy failure, in not only losing control of the Euro/Franc peg, but incurring massive, unpayable debts and catastrophic losses in doing so. And not only that, but in today’s disastrously over-leveraged world of “carry trades” – financed by the promises of central bankers, both implicit (like the “Yellen Put”) and explicit (like the Euro/Franc peg) – the “breaking” of such promises puts the entire financial system at risk; as occurred Thursday, when massive losses were reported by foreign exchange traders, hedge funds, and “TBTF” banks themselves – including Goldman Sachs. And oh yeah, an utter avalanche of selling in the world’s most widely used currency, the Euro, whose cumulative ramifications will be so broadly negative, it could easily catalyze a new World War. In other words, the veneer of Central bank infallibility was permanently broken, with the only questions remaining being “who’s next?,” and “how long?” until the game finally ends.
By now, particularly following Christine Lagarde’s comment that the SNB announcement took the IMF off guard, the entire world is starting to realize just how desperate – and terrified – the SNB was; although frankly, if they (and Christine Lagarde) had simply read the Miles Franklin Blog, they probably would have been more prepared. In other words, it is rapidly becoming “common knowledge” that not only are Central bankers clueless; and incapable of having even the slightest positive impact on economic activity or balance sheets; but they are clearly not even communicating anymore, as it’s become “every man for himself” amidst the terminal, catastrophic phase of history’s largest Ponzi Scheme.
Yes, U.S.-led market manipulators are still doing everything they can to prevent the “end game” of a final and total loss of confidence; but at this point, the only markets they still hold sway over are the equities of the largest markets – like the “Dow Jones Propaganda Average” and German DAX; and, of course, the paper gold and silver markets. I mean, watching the DAX hit a new all-time high Friday, as the Euro hit a new 12-year low; whilst the Swiss stock market plunged as the Franc surged, could not better depict just how “deformed” the Central bank fostered, PPT and Cartel-abetted financial markets have become. Only now, the “hangers on” that have been utilizing such orchestrations to their benefit are losing massive amounts of money. And with the Swiss carry trade now over – and confidence in the viability of other such “free money” schemes in doubt – it shouldn’t be long before the aforementioned, bastardized “memes” are dead, too. To that end, when I saw St. Louis Fed President James Bullard again try to prop markets with pathetic, transparent jawboning on Friday, I couldn’t help but think this is the “bottom of the barrel” of Central banking “weaponry.”
*Bullard – Fed could resume unconventional policy if needed
*Bullard – Lesson of QE is it works ‘fairly well’
No matter how you slice it, the SNB’s catastrophic decision to initiate the Euro peg in 2011 will be remembered as the beginning of the “end of the era of Central banks”; although it wasn’t until the peg was broken that the world realized it. And in its aftermath, Central bankers’ fear and cluelessness will be Center Stage, as the Bank of Japan meets on Wednesday the 21st, the ECB on Thursday the 22nd, and the FOMC on Tuesday the 27th. And oh yeah, in between we have that little old Greek election, which may well catalyze a horrifying run on European banks.
As for the only guaranteed benefactors of this financial macabre, how ironic is it that the wildly dovish September 2011 commencement of the Euro/Franc peg started the gold “bear market?” – which I write in quotes, as it was entirely due to illegal price suppression. Whilst the end of the peg, when all is said and done, will almost exactly coincide with the “bear market’s” end? Just looking at the startling U.S. Mint sales figures to start the year – before the SNB fiasco, as “after” data has not yet been reported; as well as data released Friday that China imported an unfathomable 61 tonnes of gold in the first week of the year, putting in on a pace to exceed 2014’s record level by a whopping 50%; and oh yeah, accelerated Russian gold buying, and you can see how the potential for the entire world catching an advanced case of “gold (and silver) fever is extremely strong.
To conclude, we can’t be more emphatic that “2008 is back.” Only this time, we are at the “end of the era of Central banks”; and thus, they will not only be unable to “contain” the damage, but themselves will be destroyed like ants under a magnifying glass. The Central banks’ maniacal money printing schemes were the only way to keep history’s largest Ponzi scheme growing; and now that confidence in them is failing, and the need for gargantuan QE programs just to prevent instantaneous collapse has arrived, it won’t be long before Central banks will have as much relevance as buggy whips.
We at the Miles Franklin Blog can only plead with you to take action to protect yourselves. And if you decide to do so with precious metals, we hope you’ll give us a call at 800-822-8080, and give us a chance to earn your business.
Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, as Media Director in October 2011. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies.