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wonderpup

An Obvious Question.

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Given the unprecedented ongoing efforts by central banks nearly everywhere now to manipulate and control the global economy so as to avoid the bad and promote the good we must assume that this is something they believe they can actually do.

That being so- the question then arises; why have they not done this before? Why have these same institutions in the past not simply exerted their power to prevent the sadly long list of financial disasters that have caused misery to millions?

One argument may be that in fact they have done this before- but failed because they did not do it enough- but this simply replicates the first question in another format; why-then- did they not do it enough?

Are we to conclude that they could in fact have averted the various financial disasters that litter the history of the 20th/21st century but were too ideologically hamstrung to do it? Prior to 2008 this claim might have had some small resonance - but the speed with which the entire establishment around the globe abandoned their free market principles in favour of massive central bank intervention when the 2008 crisis came was emberressing to watch- they didn't just change tack, they folded overnight like a house made of wet cardboard- so it's hard to imagine that ideological squeamishness can explain their previous failure to tap the immense power they now seem to imagine they wield over global markets and the world economy.

After all we currently have present on our planet a small group of individuals who seem to be making the claim that it's within their gift to decide the values and outcomes of virtually every trade on earth- they can alter the fate of entire continents from their offices simply by making minor adjustments to the various financial parameters over which they have control- this is a non trivial claim to make.

Currently the stock market is riding high on the assumption that the Central banks do indeed wield this mighty market shaping power- and this belief is to a degree self fulfilling.

But this does lead to a curious paradox; if we accept the premise that Central banks can and do have the power to control the global economy in the face of a crisis then how could such a crisis ever have arisen in the first place?

We are being asked to believe in the notion of a kind of fallible omnipotence- a bizarre hybrid concept in which those in control of the system are deemed capable of both shaping it to their will on the one hand while simultaneously being it's hapless victims on the other.

Ben Bernanke-along with the entire central banking patrician class- have been described as having 'saved the world' from a financial disaster via their mastery of the console that controls the machine.

Less charitable minds might point out that these same individuals were seated at the same console when that-and previous- financial disasters struck.

It seems to me that there are only two rational positions to take up on this matter- either the central bankers can and do control events- or they do not. Of the two the latter seems the most plausible- in which case the current mythology in which the central banker has emerged as the savior of the global economy is-alas- only a myth- and any apparent success they seem to be having is mostly an illusion created by industrial strength wishful thinking on a global scale.

And the fact that nobody even asks the obvious question that I posed at the top of this post is evidence of that wishful thinking- it's simply not rational to believe that the people who failed to avert the crisis have the power to prevent it's inevitable consequences- because if they had this kind of control the crisis itself would never have happened in the first place.

Edited by wonderpup

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The monetary system is based on faith, and trust. The media is the pilar of trust, and never before has the media been more powerful and coordinated, that is why central bankers feel like they can walk on water right now. Greed will take over and the problems will store up until we get another 2008. And so on. Central banks can always feel that they can cushion any fall by flooding the world with fiat. I have already ordered my copy of the Invisible Crash by James Dines (written in 1975), as I think history generally repeats, as a new generation learns about finance.

On the most basic level, small communist countries maintain a tight ship on what the media is allowed to say, and the nation puts its trust into its leader, or faces the stick.

Edited by 200p

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I think it that people are now desensitized to "money printing" and various other things that would have caused some pushback from the general populous in times past. Also maybe people have shorter times horizons now and a growing intolerance for short term pain for the long term benefit.

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How do we know they are trying to achieve a global recovery? We only have their, and the media's, word for it.

How it is different from previous times? Well, we are a lot more connected and more quickly than previously - and there's a lot more computing power to throw at any problem. That means you can actually coordinate with others, and also model potential solutions.

I think there's also something to what goldbug says. Because things can happen more quickly, they have to. In previous panics, you likely had days, if not weeks, to sort something out. Now you likely have hours. And while I don't believe people have fundamentally changed, our society, culture and technology leans towards the instant gratification our monkey brains desire - and that's not just a problem for plebs like us - but also the so-called masters of the universe.

Edited by StainlessSteelCat

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I think it that people are now desensitized to "money printing" and various other things that would have caused some pushback from the general populous in times past. Also maybe people have shorter times horizons now and a growing intolerance for short term pain for the long term benefit.

Money to most has to be earned or borrowed....borrowed to do away with the short-term pain of working/saving for instant higher cost wants and needs.......earned money does not feel as if it is free or printed......borrowed is free when never repaid or the printing of it makes it worthless over the long-term.........so now this is the situation we find ourselves in..Yesterday's hard work then becomes worthless, today's hard work is not worth working for unless it is spent today, and borrowed money's falling cost is the way to get the wants today now being able to work less for more spend.

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Eh?

They did what it says on the tin: - lowered the policy rate (and in some cases longer end too) and expanded their b/sheets.

Now its up to govts to stop fannying around.

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I think it that people are now desensitized to "money printing" and various other things that would have caused some pushback from the general populous in times past. Also maybe people have shorter times horizons now and a growing intolerance for short term pain for the long term benefit.

Perhaps because short term benefit for the long term benefit makes more sense

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They didn't do anything before, because their paymasters (the bankers) weren't in peril. Now they are, they are trying everything the can to ensure that these people can keep their wives (and mistresses) in the lifestyle to which they are accustomed to.

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Since WW2 the Japanese economy has undergone some interesting changes under the influence of its central bank.

This YouTube documentary, based on the work of Professor Richard Werner, gives an insightful analysis:

Referring back to the OP, one might ask the obvious question, "Cui bono?"

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Great opening post from wonderpup, very articulate summing up of the current situation which I tend to agree is all smoke and mirrors! While I was reading, I was wondering where you were quoting from! But you never mentioned one so I'll just accept that you natural have this excellent writing style! :)

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Perhaps because short term benefit for the long term benefit makes more sense

So answer me this: if creative destruction is never needed (to purge inefficiencies), why does a booming economy not stay in a perpetual state of boom ?.

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Given the unprecedented ongoing efforts by central banks nearly everywhere now to manipulate and control the global economy so as to avoid the bad and promote the good we must assume that this is something they believe they can actually do.

...

I'd dispute the premise of your question, it's not unprecedented. It's their remit to manipulate the economy to try and promote "the good" - as defined by government, that's what monetary policy is about - although I think they like to use words like "stability". You can of course argue that the central banks have been rubbish at their achieving their remit, or that the entire concept of a central bank, fractional reserve banking and a debt-based currency is flawed, but that's another argument.

Whether they "believe" they can do it is a moot point. They did what was expected of them during a time of crisis to maintain the status quo. They won't stop until either systemic failure, or political pressure forces change to that status quo... or everything magically returns to how it was before.

Edited by Bear Goggles

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The incumbent bankers, etc, are hoping the economy will defy gravity just long enough for them to rotate into bust-resistant assets like land.

Then the next tranche of bankers, etc, take their jobs by Buggin's turn and do the same. Each generation hoping that the music will keep playing until they have found their chair.

It all works until it doesn't.

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It is a good question Wonderpup.

How do we know they are trying to achieve a global recovery? We only have their, and the media's, word for it.

They didn't do anything before, because their paymasters (the bankers) weren't in peril.

My answer is a mix of the above, with sudden correction still to come, on complacent market participants who have overextended into forever boom.

They've got all their fingers stuck inside the 'easy'

in search of yield/capital gains from these dizzy heights, with no idea of how to get free when needed, or sell up in time, when correction comes. When banks want to get lot more debt onto assets owned by others, requiring lower asset prices.

Dec 17, 2014

[..]MARKS: And one of the lessons that we're learning again now is how fast things can change in the investment world. There was an economic philosopher, Rudiger Dornbusch, who said it takes a lot longer for things to happen than you think that it can, but then they happen much faster than you thought they would. And that's the way things go in the investment world.

[..]MARKS: Declines are not a reason to get worried. Declines are a reason to get excited. The investing public like things better at high prices than at low prices. The professionals like things better at low prices than at high prices.

RUHLE: Hold on, one more time. Say that one more time because it's such a good point.

MARKS: Well the public, people who and who don't understand how investing works like things, feel better at things when they're at high prices, and lose confidence as the price falls. Warren Buffett says, I like hamburgers and I eat more of them when they go on sale. The investment professional who understands the intrinsic value of the things he's looking at, hopefully, likes things better when the price converges to or falls below the intrinsic value.

http://www.marketoracle.co.uk/Article48681.html

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I'd dispute the premise of your question, it's not unprecedented.

In terms of scale it is- but that was not the premise of my question. My point was that those who seem to believe-and act on the belief- that Central Bankers control the global economy never seem to ask themselves why this control was not apparent in the past- after all it's not as if Central Banking is a recent innovation, yet as recently as 2008 we had a massive global crash in the system- the same system we now must suppose is under the complete and expert control of Central Banks.

To me it's a genuinely strange thing that just over half a decade since one of the biggest financial meltdowns in history faith in the ability of those running the system has never been higher- at least faith as measured by those willing to invest in stocks, many of whom are using leverage to do so.

Maybe it's an attention span thing- or maybe it's just that people come to believe what they need to believe when they need to believe it.

Or perhaps there's a deeper and more cynical truth here- the real faith here is not in the control of Central Bankers but in the willingness of Governments to deform the system at virtually any cost to the general welfare of the population in order to preserve the speculators upon which that system now seems to depend.

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Before 2000 or so, it was generally accepted by everyone (government, economists, bankers, newspaper columnists and the general public) that if there had been a bubble, then the only possible outcome was a recession. The only action was to set the economic levers so the economy would operate as efficiently as possible for the level of activity. There wasn't really any "special treatment" for recessions.

Probably because the bankers are now effectively in charge of government, they now believe, and have convinced everyon, that it is different this time.

You can imagine, if engineers were in charge, they would be saying the solution was simply building more bridges, if it was phyisicist, it would be nuclear power and space exploration that would save us, doctors, more hospitals etc.

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In terms of scale it is- but that was not the premise of my question. My point was that those who seem to believe-and act on the belief- that Central Bankers control the global economy never seem to ask themselves why this control was not apparent in the past- after all it's not as if Central Banking is a recent innovation, yet as recently as 2008 we had a massive global crash in the system- the same system we now must suppose is under the complete and expert control of Central Banks.

To me it's a genuinely strange thing that just over half a decade since one of the biggest financial meltdowns in history faith in the ability of those running the system has never been higher- at least faith as measured by those willing to invest in stocks, many of whom are using leverage to do so.

Maybe it's an attention span thing- or maybe it's just that people come to believe what they need to believe when they need to believe it.

Or perhaps there's a deeper and more cynical truth here- the real faith here is not in the control of Central Bankers but in the willingness of Governments to deform the system at virtually any cost to the general welfare of the population in order to preserve the speculators upon which that system now seems to depend.

Okay, so your question is less about the belief of central bankers themselves, but others who have put their faith in them.

I listened to the Today Programme on Radio 4 this morning, it’s probably available on the BBC iPlayer to listen to again. It was guest edited by none other than Sir Mervyn King, and he interviewed his old mucker from his MIT days, Ben Bernanke. They reminisced about the good old days of dealing with the biggest financial crisis in living memory. I think Merv referred to it as ‘fun’ at one point.
The thing that struck me was that their language was not that of puppet masters pulling the strings, but of pilots trying to land an out of control aircraft buffeted by the forces of nature, I think they even used that exact analogy and one of a car spinning on ice. Of course they didn’t use any analogies to explain how the car got into a spin in the first place, heading into a blind corner at full throttle or such like, it was purely about dealing with the consequences.
Back to your question, I think faith in the system only exists for those who stand to continue benefiting from it as it is, which is clearly not ordinary people who work in the real economy. When the crisis first hit, I remember Merv referring to ‘moral hazard’ and calling for the break up of the banks.
It doesn’t seem like it’s individual central bankers that have much faith, and it’s obvious that ordinary people have lost faith in the financial system, so it should be clear that the belief that you refer to is just plain old self-interest, real reform of the system would reduce the wealth of the few who benefit from it, and risk the careers of politicians who have preceded over it. So for now they all work to maintain it, and will continue do so until they fail, either economically or politically.
Edited by Bear Goggles

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The benevolent state and its machinery have largely displaced religion. Instead of having faith in God, they now have faith in bureaucrats.

One day, people will tire of listening to these fanciful stories. Maybe then the nonsense will cease and some sanity will return.

Edited by Traktion

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