ER Editor: Although Charles Hugh Smith below is writing primarily about American citizens, increasing rates of poverty apply just as much in Europe, a fact which the Gilets Jaunes have made abundantly clear. They know who the real enemy is.
This article from January 2018 by Liam Halligan gives some nuts-and-bolts as to why central bank policy has made the rich massively richer since 2008: Capitalism’s richest got richer from central bank responses to 2008’s bust (as well as from the boom before it). By turning on the money-printing presses (aka Quantitative Easing or QE) as a response to the 2008 financial crisis, and forgetting to turn it off and thereby ‘pumping up the financial markets’, ordinary people have suffered. Of note:
The QE we’ve seen since 2008 hasn’t been straight money printing. From ancient Rome to revolutionary France and Weimar Germany, that has always ended in tears. Instead, the Fed, the Bank of England and other members of the global central banking get-togethers have been creating electronic balances ex nihilo and using them to buy bonds. The initial idea was to absorb bad debts from fragile banks and other corporate investors – so as to shore up the financial system.
What QE became, however, was a way for central banks to buy endless government bonds. That’s allowed ‘advanced’ economies to keep government spending and borrowing high, while rigging bonds markets to keep interest rates historically low. This was supposed to maintain confidence and spark ‘trickle-down’ growth.
What we’ve seen since the Lehman collapse has instead been, across the Western world, the slowest, most hesitant economic recovery in recorded history – as well as a host of negative side-effects:
- Years of QE and ultra-low interest rates have hammered savers. With rates below inflation, real interest rates have been negative, meaning that the thrifty lose out. Rock-bottom annuity rates, resulting from the impact of QE on sovereign bond yields, have condemned countless retirees to lower pension incomes for the rest of their lives.
- The flip side of savers’ low interest-rate pain has been a massive wealth transfer to the bailed-out banks.Voters have had to watch the financiers, having wrecked the economy, get rich at everyone else’s expense all over again. That tears at the heart of the social fabric.
- The massive Western monetary expansion has generated deep distortions within both equity and bond markets AND which – as QE is withdrawn – could unwind in a rapid and explosive manner. While almost no-one wants to discuss this, it is an obvious high risk.
- Equity markets are particularly over-valued. The US Dow Jones Industrial Average closed at an all-time high on more than seventy times during 2017. Valuations are stretched on low trading volumes – a classic indication of crash territory.
- In the UK, in particular, but also the US, much of the QE money has ended up in real estate. This has pushed average house prices to historically high multiples. In Britain, the average home now amounts to eight-times average earnings.
- As such, home ownership is plunging, especially among the crucial family-forming 25-39-year old age group. These were the voters who, in the June 2017 general election, backed Jeremy Corbyn in droves. By juicing up the housing market, and pricing-out a generation of young adults, QE has changed the face of British politics.
Ordinary people have been sidelined from the type of assets that have increased in value; and much that was made available through QE hasn’t reached down to ordinary people:
Why hasn’t QE led to inflation? The answer is that it has – but the inflationary pressures have been channeled into stocks, bonds and property, prices that don’t feature in the price measures of retail consumers. It should be noted, also, that a large chunk of the funds created by central banks have, for now, remained out of circulation. That’s because banks and other corporate investors that sold bonds and other financial instruments to central banks, receiving QE cash, returned that cash back to central banks. Rather than using these funds to lend – part of the point of QE – commercial banks were required by regulators to set aside more ‘reserve capital’ with central banks – all to strengthen their balance sheets.
Dear Central Bankers: Prepare To Be Swept Away In The Next Wave Of Populism
The political moment when the “losers” connect their discontent and decline with central bankers is approaching.
The Ruling Elites’ Chattering Classes still haven’t absorbed the key lesson of the 2016 U.S. presidential election: the percentage of the populace that’s becoming wealthier and more financially secure in the bloated, corrupt, self-serving Imperial status quo is declining and the percentage of the populace that’s increasingly insecure and financially precarious is increasing, and candidates that mouth the usual platitudes in support of the bloated, corrupt, self-serving Imperial status quo lose to those who speak of the failing status quo as a travesty of a mockery of a sham, i.e. a “populist” speaking truth to power.
Just as we’ve reached Peak hubris-soaked, self-serving managerial / ruling Elites, we’ve also reached Peak Central Bank Cargo Cult: from now on the majority that’s been abandoned by the managerial / ruling elites will become increasingly aware that the unprecedented asymmetries of wealth and power that have undermined American social and economic life can be traced directly back to the central bank, the Federal Reserve, which has become the all-powerful Cargo Cult of the global economy.
The same awareness of central bankers’ responsibility for soaring wealth-income inequality and the decline of social mobility is spreading in other nations as well.
Longtime readers are probably tired of the chart below, depicting the incredible expansion of wealth in the already super-wealthy and the stagnation in the prospects of the bottom 95%. But let’s shake off the boiled-frog syndrome and check the temperature of the political water we’re immersed in: It’s getting hotter–a lot hotter.
The ideological rhetoric of the next wave of populism matters less than its intensity. It’s not just possible but increasingly likely that the next populist wave will assume many of the populist positions of the Left, positions which the “progressive” status quo is desperately attempting to co-opt and water down.
The core reality that powers populism Left and Right is that the economy no longer works as advertised for the bottom 80%, and by many measures, the bottom 95%. The “conservative” camp generally holds that the “problem” is markets have been throttled by heavy-handed government regulations while “progressives” see private-sector wealth / power as as the problem and “taxing the rich” and redistributing the wealth as the solution.
What neither status quo camp dares mention is the domination of central bankers and the “winners” of their dominance, financiers, global corporations and state-enforced monopolies / cartels. (The losers are of course the rest of us: tax donkeys, debt-serfs, wage slaves, the restive crowd demanding more bread and circuses, etc.)
The political moment when the “losers” connect their discontent and decline with central bankers is approaching. Perhaps the wires will arc in 2020, or maybe it will be 2025; but whatever the timing turns out to be, the all-powerful Cargo Cult of the central bankers will be swept away in a global political convulsion unlike any in memory.
If you harbor any doubts about the demise of the Central Bank Cargo Cult, reflect a bit longer on the meaning of this chart:
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