Central Bankers Gone Wild

With the national economies of Europe and the United States all falling back into another wave of economic contraction — the third since the 2007-08 crash — central banks are now all launched on hyperinflationary printing sprees to keep banks bailed out. It can't work, and as Harvard economist Nicholas Rogoff commented in an op-ed today, "it will make the final result a lot uglier."

On Jan. 24, in a typical British move to cue his American counterpart for the following day, Bank of England Governor Mervyn King said bluntly that the BoE will "continue printing money", with resumed asset purchases of both bank-held securities and government debt. The UK Office of National Statistics today announced that the UK economy officially contracted at an 0.8% annual rate in the fourth quarter, and there is no question it is shrinking faster now.

The European Central Bank is expected to print approximately $1 trillion more in new 3-year loans to banks in February, taking advantage of a new, unlimited swap facility to be announced by the U.S. Federal Reserve on Feb. 14. The ECB's previous such lending on toxic collateral has it in trouble now. It is resisting taking any "haircut" on the Greek sovereign debt it bought in 2010 (55 billion euros worth), saying that this would compromise the ECB's credibility and monetary policy operations. (Indeed.) This has frozen the Greek "haircut" or write-down discussions with the bankers' group, the International Institute of Finance, which demands that the ECB "participate" in the haircut. Meanwhile, the Kiel Economic Institute in Germany has released a report saying that even if Greece gets the "below 3.5%" interest rate the EU demands, and a 70% principal haircut on the debt exchange besides, it still can't possibly pay its debts with a disintegrating economy.

With all the Euro economies contracting, the IMF's new "potential world recession" forecast, released Jan. 24, is a political move to force Director Christine Lagarde's demand that the new EMF bailout fund be given at least a $1 trillion bailout capability, while the IMF itself gets another $500 billion. The German government is resisting these hyperinflationary moves.

And then there is "Crazy Ben: his money-prices keep getting more and more INSANE! He's practically giving it all away!" — if you're a bank. The Federal Reserve FOMC statement from the Jan. 24-25 meeting extended the promise of zero rates for an additional year and a half, to "at least late 2014". That would make six years of continuous zero interest rates! And in Bernanke's press conference later Jan. 25, he emphasized the part of his statement making clear that the Fed COULD soon resume buying mortgage-backed securities, etc. from banks, while not announcing any immediate new "QE".

The FOMC also foresaw further slowing of the U.S. economy, and found that business investment is stagnating. Genius.