Central Banks: Supporting the Economy or Backing Political Campaigns

June 17, 2012

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“The question is not whether central banks can withdraw this money again once broad money growth gains traction – most think that’s mechanically easy – it’s whether they will be able to resist pressure to carry on underwriting government deficits.” ~ Reuters Hedgeworld

  • “for the source of central bank independence is public support from elected officials that the central bank is pursuing desirable social goals.~ Bank of England policy maker Adam Posen
  • “The heyday of independent central banking could be drawing to a close;” ~ HSBC

Stated differently, central bank independence is predicated on printing money to fund the deficits required for unsustainable social programs. This does not sound like independence; more like, governments are stocking central banks with doves to monetize the debt, institute a punitive inflation tax on the people, to advance policies that half a shelf life of the next election.

BoA Merrill’s survey of 260 Portfolio Managers

    • The balance sheets of the Big Four central banks have collectively more than tripled to $9 trillion
    • 75% expect the ECB print more by October
    • 50% expect the Fed to also print more
    • BOJ and BOE both appear committed to more printing

It’s somewhat surprising that only half of portfolio managers expect the Fed to print more, nullifying any thoughts that additional QE is already priced in the market. Markets could experience another sugar high, with the effect less than previous spikes, due to rising tolerance.

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  • “The boundary between monetary policy and government debt management has become increasingly blurred.” ~ BIS
  • ‘Central banks are acting as government agents responsible for stabilizing bond markets and propping up banks, not for controlling inflation’

In ten years, many people will look back on the actions of central banks deem them insane.

 

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