For anyone looking for an intelligent and historical perspective on what happened in Turkey just over a week ago, please take a look at this article by Robert Fisk of the Independent. In my opinion he understands middle-eastern politics far better than the majority of mainstream reporters, certainly in the UK he is way ahead of the rest…importantly, he doesn’t pander to what western governments would prefer us all to think, I.E. to ignore our part in creating the ongoing mayhem
As expected, a deal is being negotiated by the Italian Prime Minister, Mr. Renzi, and the ECB in order to bailout the Italian Banks. Clearly there is no way that Mr. Renzi is going to let the banks go to the wall, since hundreds of thousands of small Italian investors own stakes in the banks through their savings and retirement provisions. This highlights a couple of things:
1. The years that Brussels have spent negotiating a set of ‘bail-in rules’ were a complete and utter waste of time, since without fundamental reform of the EU’s monetary and fiscal framework this was inevitable
2. People who are now bemoaning that this debt will be born by ‘the taxpayer’ are also missing the point somewhat, which is this – the debt will never be repaid. Policymakers are continuing to kick the can down the road, in the hope of a miracle, or for a future set of policy makers to be the ones to sort out. They will be badly disappointed – when something cannot carry on forever, it doesn’t. The monetary crisis that is coming will not be escaped by these fools, and neither will the well earned debunking of their reputations - the next time we see Central Bankers on the cover of Time magazine it will not be accompanied by a strapline celebrating them as the people who saved the world - it will say something else entirely.
On a similar note, this week marked the latest ECB meeting and press conference. Mr Draghi surprised many by not increasing his QE programme, but reassured his admirers, if there are still any trusting souls out there, that despite the fact that the ‘rules’ do not allow him to buy German bonds which are now offering negative yields…his options are still open...his tools are still more than capable of helping him rescue the economy…
Mr Draghi lives in the same delusional world as Professors Summers & Krugman, Doctors Bernanke and Yellen, and the rest of the spreadsheet wizards who see mathematics rather than psychology at the zero bound.
Negative rates are not stimulative; they are deflationary. He is bankrupting insurance companies and pension funds, encouraging older people to hoard rather than spend, and laying the groundwork for capital flight.
Businesses and individuals do not think and behave like governments or academics, most of which have never had a real job, and only know how to spend other people's money. In the real world:
- Businesses borrow and invest on the basis of fundamentals and compounding. NIRP encourages 'greater fool' behaviour - i.e.share buy-backs and asset bubbles.
- Individuals borrow when they have a need or when they see an opportunity to gain something - not because they feel the need to conform to the theories of an 'economist' desperate to pull a rabbit out of a hat.
In short, negative rates send out a message that says 'we haven't got a clue what we are doing', which strangely enough is the truest thing Mr. Draghi has said since he took the job.
Finally, yet again on the subject of central banks, Mr Kuroda disappointed markets this week after they had worked themselves into a frenzy selling the yen and buying the Nikkei in expectation of the announcement of ‘helicopter money’…a rumour that had been encouraged by the visit to Tokyo of none other than ‘Blackhawk Ben Bernanke’.
Mr Kuroda announced that in Japan, direct monetisation of debt is not legal, by which he means that the US told him he couldn’t do it…I don’t ‘know’ this of course, but clearly ‘rules’ have never stopped these charlatans from doing something before. Nope…when Japan wants something the US doesn’t want it to have, the argument is a brief one. This may delay matters a little, but it doesn’t change the pallor of the yen, which looks like a ‘dead man walking’ to me.
So to end my weekend rant, I leave you with a little ditty in celebration of all the money printers who are just aching for someone to rev up the helicopters and start showering the counterfeit…geniuses like Professor Krugman, who, for the purposes of this missive, I have given the affectionate title of ‘The Duke of Pork’ - in honour of his support for Japanese largesse, and his love affair with unaffordable entitlement programmes & bridges to nowhere. So, to the tune of the children's nursery rhyme 'The Grand Old Duke of York'…I give you:
The Grand Old Duke of Pork
Went short ten trillion yen
He cheered as it slid down the curve
And he cried as it rose again
And when it was up it was up
And when it was down it was down
And then when the yen gave up the ghost
It was neither up nor down
And that was the other news…Saturday 23rd July 2016...a good weekend to all…MarkGB