Central Banks: Confusion and Fear in Anticipation of Shocks

Central Banks: Confusion and Fear in Anticipation of Shocks

Few know that in addition to the G7, G10, and G20, the Group of Thirty – G30 also exists. This is an informal annual meeting between the directors of the central banks of 30 countries. These events get very little media coverage, but one can assume that the G30 meetings are set up by the Bank for International Settlements (BIS) in Basel, which is widely thought to be the General Staff of the central banks of many countries.

The tone of the report submitted by the Group of Thirty on Oct. 10, as well as its conclusions, was summarized by Reuters as follows: «Central banks worked alongside governments to address the unfolding crises during 2007–09, and their actions were a necessary and appropriate crisis management response. But central bank policies alone should not be expected to deliver sustainable economic growth. Such policies must be complemented by other policy measures implemented by governments. At present, much remains to be done by governments, parliaments, public authorities, and the private sector to tackle policy, economic, and structural weaknesses that originate outside the control or influence of central banks.

In order to contribute to sustainable economic growth, the report presumes that all other actors fulfill their responsibilities... Central banks alone cannot be relied upon to deliver all the policies necessary to achieve macroeconomic goals. Governments must also act and use the policy-making space provided by conventional and unconventional monetary policy measures. Failure to do so would be a serious error and would risk setting the stage for further economic disturbances and imbalances in the future». 

As you can see from this excerpt, in their list of those they hold responsible for the imminent (and inevitable!) financial and economic crisis, the central bank directors from the Group of Thirty included parliaments, public authorities, and the private sector, in additional to governments. In its article, Reuters uses the term that was employed at the meeting of the central bankers – «unconventional monetary policy measures». 

This is a reference to the program of «quantitative easing,» which means using the full power of the central banks’ printing presses to issue new currency with which to buy government debt securities. The policy of the central banks has always been to cloak their own unsavory actions with artful words. In the good old days, it was up to the governments to issue money, in the form of treasury notes and money that was interest-free and not saddled with debt.

But moneylenders became the energetic architects of a new history that launched the era of bourgeois revolutions in Europe. They helped to overthrow monarchies, establish parliaments, and ratify constitutions with one major goal in mind – to get hold of the currency printing presses. The bourgeois revolutions could be more accurately titled «monetary revolutions». However, this confiscation needed to be better justified. And a justification materialized: governments tend to abuse their right to issue money. They might, perhaps, use their currency printing press to cover state budget deficits, which is unacceptable because it can cause inflation. 

Conclusion: the printing presses need to be taken away from the governments and transferred into «safe hands». By definition, those could only be the hands of private moneylenders («independent professionals»). The currency printed by the moneylenders would be given to the governments, while the taxpayers would be responsible for paying the interest charges.

A strong influx of «easy» money, issued as part of a «quantitative easing» program has helped push up the prices of various assets (the measure of corporate capitalization) and real estate, but has not been able to help revive the real economy in the slightest. The negative impact of «easy» money could first be seen in the economies of those countries on the periphery of global capitalism, but now it has also taken a toll on wealthy, first-world nations.

The US Federal Reserve announced that it had ended its bond-buying program back in 2014 and promised that it would raise interest rates from zero no later than June 2015. Looking at the derivatives market, the majority of those players are betting that the Fed will raise the discount rate in March 2016.


However, it should be kept in mind that the players in the derivatives market have often been guilty of misplaced optimism and wishful thinking. Personally, I have absolutely no reason to believe that interest rates will rise next March. I am more inclined to trust those financial experts and analysts who say that the Fed’s discount rate could fall into negative territory.

Incidentally, the directors of some US Federal Reserve Banks (the Fed consists of 12 Federal Reserve Banks, the largest of which is the Federal Reserve Bank of New York) are cautiously leaning in this direction. Negative rates for passive banking operations are already a reality for central banks in Western Europe. The ECB, for example, imposed a negative rate on its deposits a year ago.


If the US Federal Reserve publicly announced an end to its quantitative easing (QE) program, the Bank of England is delaying such a step, and the ECB is preparing to launch a new round of QE. As for the Bank of Japan, it has effectively been living under a policy of quantitative easing ever since 2001, with zero rates on passive operations and symbolic discount rates on active operations. This is its modus vivendi.


Although China has made no announcement in regard to quantitative easing, there are developments in process there that are similar to those that can be seen in the rest of the world. The economy is awash in money that is pumped back in by the official banks as well as by the shadow-banking companies. The IMF estimates that there has been $3-trillion in excess lending in emerging market economies, which is approximately equal to 15% of their combined GDPs. This is a giant «credit bubble,» which could easily spark a financial and economic crisis, first in those countries on the periphery of global capitalism, and later in the wealthy, first-world nations.


The G30 report states: «Central banks have described their actions as ‘buying time’ for governments to finally resolve the crisis … But time is wearing on, and purchases [bonds – V. K.] have their price». The price of such a purchase would be a global crisis. One can expect that in the near future the media, which is under the control of the «money masters,» will dramatically step up their criticism of state economic policy in many countries. The reason is simple – the «money masters» (those who own the central banks’ printing presses) will do all they can to shift the blame for the crisis onto the governments, so they can yet once again retain control of the currency printing presses.

Tags:   G20   US