Central Bank Olympics
Central Bank Olympics
We are witnessing battle after battle on the monetary front. Central banks are in dire attempt to hide away asset losses in clouds of easy money and negative rates assessable to the inner circle. Europe has found a way to side step its’ mandate and prop-up assets and it’s magnificently leveraged banks along with them. For a time of course.
If and when rates are increased by the Federal Reserve we will witness a considerable wave of actual money run for the exit towards U.S. and elsewhere where the books aren’t as cooked nor the asset liquidation cannot occur.
The crux of the matter is that the consumer is dead, borrowing isn’t turning over, and non-performing loans are piling up. Yet, assets are being stock piled as their usefulness depreciates away in the winds of time. It is fascinating to see the bottomless pockets of electronic account mechanisms be filled and refilled to battle the actual real demand that is waining and contracting due to their intervention. All purchasing power has already been sucked out from the plurality of those that had it, however there is still an attempt of banks to somehow, someway, save themselves for another day. By this point there could have been some sort of an orderly auction mechanism to gradually liquidate portions of assets that could have garnered something, anything. This begs a very rational question. Are these assets really worthless? Assuming anything worthwhile has been already sold and re-packaged into something else, perhaps what is remaining is simply holes in the non-existing capital that prevents the complete destruction of the savings (deposit) base. In some sense this is where the pathway leads.
However, one would question the existence of savings if purchasing power does not exist in relation to being tied to said savings.
If you have money but you cannot afford to buy anything with it without credit do you really have money?
So letting asset prices implode as they should have would restore some balance in the cycle of supply demand and otherwise. The ever present garnishing of the purchasing power by the financial system, seems to have gone too far. Appropriation of contingent liabilities tied to said ‘assets’ in relation to the ever increasing demand in the future that will never materialize due to these actions only creates a further gap of space we must fall through to reach reality.
Three outcomes are simultaneously slowly occurring.
1) Parallel monetary systems where these assets are worthless and nullified. I am not talking about Bit-Coin because it is tied to notional currencies directly via exchange mechanisms. What I am talking here is purchasing power tied to non currencies and non governments.
2) Demand required for profitable industry does not supply enough liquidity to carry expanding debt loads. Ergo, companies that can produce and make money have to reduce debt loads since expanding it to buy back shares or issue dividends cannot be prudently expected to last through payback of debt AND capital(machinery etc.) needs. a) This removes profitable debt that brings revenues to the financial system and removes an asset that could be conveyed for monetary liquidity. b) Repayment of debt reduces the amount of money in the system since most of the funds are parked at the Central Bank since their redeployment into real economy is in question. Thus reinforcing the likelihood of of purchasing power snapback.
3) Flows through the system are making it systemically weak in establishing a post-moment reality. Ergo, imagine asset liquidation begins to occur and other non liquidating assets start clearing at those levels as well. Access to get credit would be nil for some time for most participants, so alternative mechanisms will spring up to provide said funding. If you are forced into using part of assets you get as currency to function and the system becomes significantly entangled where one business owns part of another to supply it with inventory and so on along the chain to address liquidity that nobody has access to anymore. Even in an improving environment dis-entangling the system will be problematic.
Be well dear reader and enjoy the clouds.