SECTION TWO, PART FIVE

Children of an Indifferent God; Are We There yet? Any one who has taken a driving holiday with children in the back-seat of the car will be aware of the refrain. Typically, the driver will answer, in frustration, that it is not much further. This is an appropriate time to ask the question about central bank responses to their on-going experiment with your and my money, and why I think it will fail badly. Let's break it down into bite size pieces. Firstly, collectively, government budgetary policies have been stretched to the point that they had little capacity to respond to what happened in 2007/2008/2009, because the freeze in economic activity destroyed the collective tax bases, at the time that the pressure on their social spending was not able to show the same elasticity, by falling in equal measure. Some countries responded differently, depending on their capacity to handle the loss of confidence, but in general, all have a constrained fiscal environment as a fundamental starting point. Flowing from this, where it was possible to do so, respective countries left it to their central banks to try to rescusitate their economies via monetary policies, i.e. the lowering of interest rates. Unless of course they reach the zero bound, where interest rates are zero, and there is no further capacity to influence the term structure of rates...which are designed to create points of indifference between savings, and consumption. The transmission mechanism at the zero bound has NO empirical history, unless we talk about Japan, and the outcomes are reasonably non-determinable for reserve currencies. This is why Bernanke's research in the early 2000's said that the zero bound should not be a policy objective. Secondly, what do central banks do. They create a false role for themselves. In the old days, central banks roles were limited to the preservation of the value of the currency. A logical role, given that central banks are typically charged with the printing and issuance of bank notes, i.e. the currency of a country. If that role becomes redefined as the stability of prices...then we can only assume that the country is a believer in the economic theory that the issuance of bank notes is a significant prima facie driver to inflation. Fair enough, if that is the accepted view, because at least the response has a reasonably well recognised series of expectations, and pathways. But when the central bank either gives itself further policy roles, or is gifted that role by gutless legislators - of fostering economic growth - and that role is seen as trying to artificially inflate asset prices. This is not consistent with price stability [ it is, after all, directly contradictory to price stability...it is designed to create instability]. At the very least, central banks' ability to control asset price inflation has been demonstrated as incompetent....so to give them that role is truly stunning. But the central bank in the US, which is solely designed to look after the welfare of its constituent banks ( and presumably the largesse which flows from sinecure appointments into other positions in the financial system ) is indeed different to the attempted central bank co-ordination which must take place in Europe, or indeed the central bank mechanism within China's technocratically driven managed economy. And so, one country's asset price inflation, will be different to another country's, and the solution set should correspondingly be different. The need for the difference is obvious...each country will have different transmission mechanisms and speeds, because each will have a population which carries their own cultural biases about how to build wealth, and get by. For instance, the US seems to think that it's stock market is important. If it was seen as the absolute way to acquire wealth, why did so many Russians quickly sell their share certificates to the caravans which lurked outside the factory doors in the 80's and 90's apart from a cultural desire to see cash quickly, rather than believe in the corporate system. Either way, central banks are ill-equipped enough at dealing with significant policy drivers as guardians of economic growth. Otherwise, why is that the untried practice of buying long dated securities to put a cap on interest rates seen as an adequate policy response? The 2007-2009 period was not just another economic downturn! It represented a ceasura in trust. That can be the only explanation why central banks have so blindly followed a path, from which they do not know how to engineer an exit...apart from the blind belief that they can "narrative" their way out of it, through constant policy re-affirmations. Does not everyone become fearful, when they see that simple announcements of quantitative easing tapering creates significant movements in fixed income markets. What happens when the game begins in earnest! Or are the central banks that stupid that they think that if it looks like it will go pear-shaped, that they can just start it again, with more quantitative easing. European governments have been bludgeoned into believing that the US methodology is sound. The sole, and devastating, problem here, is that there is no single central bank in Europe, and the first country that pulls the trigger will see its bond market devastated. Why should the UK be bound by continental Europes' solutions, and why should the continental Europeans be bound by the "special relationship" stupidity of the UK in its pattern of behaviour in following so slavishly the US belief/ methodology set. The mere fact that Individual European countries have differing cultural mores dictate that this policy will end in disaster. Only when all countries have set an almost inevitable path of currency destruction, will the true magnitude of this unknown policy be recognised. I hope the general population refuses to accept that this was a successful, or necessary feature of the wealth transfer systems which have been knowingly, or with reckless indifference, been foisted upon them.