Central banks extend their reach as bureaucratization of markets continues

Bank of England

The twentieth century witnessed the shift from the classical order of free markets and hard, non-political money – epitomized by the gold standard – to fully elastic money and credit markets under the control of state central banks. This shift was completed in August 1971 with the termination of Bretton Woods, the gold standard’s last surviving, but limp and sickly cousin. Finally freed from the golden shackles that had always been the monetary anchor of capitalism, the global financial system produced, for the past 40-plus … [Read more...]

Contra Richard Koo and the Keynesians: It is not about ‘aggregate demand’ but about real prices

dollar notes falling from sky

I do not want to waste your time and my energy with shooting down misguided Keynesian schemes all the time, schemes that have been refuted long ago and should by now be instantly laughed out of town whenever put forward. But arch-Keynesian Richard Koo’s latest attempt in the commentary section of the Financial Times to justify out-of-control deficit spending in the United States as a smartly designed and necessary policy that will keep ‘aggregate demand’ up and lead to recovery, is making the rounds on the internet. Koo’s … [Read more...]

The fallacy of nominal GDP targeting

Book cover Cantillon An Essay of Economic Theory

In a truly remarkable piece for the Financial Times yesterday, Wolfgang Münchau took another swipe at the Euro-sceptic and ECB-critical community in Germany, which he accuses of inflation-paranoia and of simply not getting 'modern central banking'. Well, I know of many qualified commentators - many non-German - who swallow a tad harder when reflecting on the new reality of unlimited and open-ended QE in the US and unlimited bond buying by the ECB. As the central bank bureaucrats declare that they will not stop printing base … [Read more...]

Stimulus, to infinity and beyond

Ben Bernanke

There was a beautiful symmetry to last week's policy announcement by the Fed. Precisely a week after the ECB had pledged its commitment to unlimited purchases of Euro Zone government bonds, the Fed declared that its new round of debt monetization - 'quantitative easing' or QE3 - would be open-ended. Unlimited, open-ended. The concept of stimulus has certainly evolved since the crisis started. This should give us reason to pause. 'Unlimited' is not a word that is used much in economics or in business-life. The only thing … [Read more...]

More QE is on the way – The central banks are digging themselves a deeper hole

federal reserve

Dear readers, first of all, apologies seem in order. An unusual gap between blog posts has appeared on the Schlichter Files this summer. The reason is that I was travelling with my family in East Africa through most of August, enjoying the spectacular landscapes and the fascinating wildlife there, and meeting some very interesting people. Although, admittedly, I travelled in considerable comfort, and East Africa offers today reasonably good internet connections, often even in fairly remote areas, I decided not to read any … [Read more...]

Central banks: Running out of ideas, road

Eurotower In Frankfurt

On page two of today's Wall Street Journal Europe you will find the result of a readers' poll from last Friday: Question: Will the ECB's rate cut help restore confidence in the bloc's economy? Answer: 81 percent of readers say no, 19 percent yes. Last week's round of global monetary easing - another ECB rate cut, another round of debt monetization from the BoE, another rate cut from the People's Printing Press of China - is, of course, more of the same old same old. It has a discernible touch of desperation about it and … [Read more...]

Prozac-craving markets

dollar notes falling from sky

In my view, there is no escaping the fact that things are not getting better. If anything, they are getting worse. Following the large swings in financial markets this past week and reading the commentary in the press, it strikes me that there is still a surprisingly strong belief out there that our fate is in the hands of the policymakers, who presumably still have it in their power to make things better for the economy. How can they do this?  Well, expect nothing new here: Mainly by the time-worn strategy of lowering … [Read more...]

Big Brother Loves You!

George Orwell

"All within the state, nothing outside the state, nothing against the state." Benito Mussolini Those who have eyes to see and ears to hear will have noticed the accelerating trend towards interventionist policies and assertive state action all around us. This is not a conspiracy theory circulating on the internet. It is a phenomenon that is now so blatantly obvious that it makes the headlines in the highbrow pro-establishment media: The Economist and the Financial Times are talking openly about the trend towards … [Read more...]

“When they stop buying bonds, the game is over.”

Floating currency symbols

I took the title for this blog from an interview that James Turk of the GoldMoney Foundation conducted with Eric Sprott, a Canadian fund manager. You can see it here. (I also recommend you have a look at this interview with Doug Casey.) I think the quote is a succinct summation of the role that the bond market, and in particular the market for government bonds, now plays in this crisis. As you know, I would not touch bonds with a barge pole, especially government bonds. After 40 years of unending fiat money expansion, the … [Read more...]

Götterdämmerung – Germany is finished.

thunderstorm

 What disturbing and nauseating image greeted us this morning from the covers of the morning papers: a smiling and moved Angela Merkel surrounded by a bunch of suited, self-satisfied, sycophantically grinning parliamentarians happily signing their country's economic future away, burdening their fellow countrymen and women with financial obligations the grotesque size of which have long ago surpassed the average German's grasp of large numbers - all in the name of Germany's "responsibility for Europe", and for personal … [Read more...]