Quote of the Week – Central Banks


Topically after, surprise surprise, the US Fed minutes early this morning reiterated their “patience” message re raising their interest rates, this quote from credit bubble specialist Doug Noland puts in nicely into context:

“For almost six years now, I have argued that the key issue is policy-induced market distortions and attendant financial Bubbles (as opposed to consumer price inflation). The history of monetary inflations is that once commenced they become almost impossible to end. This era’s policy experiment with manipulating securities market inflation makes certain that policy exits will be even more unbearable. Most regrettably, it’s reached a point where a global securities bear market will have devastating consequences – on markets, on economies and geopolitics. So central banks keep pumping and distorting markets – and market operators continue playing the game. 

I believe we’ve now reached a precarious phase of instability where confidence in this global monetary experiment is waning. After all, there are years of experience to examine, along with rather conspicuous global financial and economic fragilities. Few have faith that “money” printing will rectify Europe’s - or the world’s - deep structural maladjustments. At the same time, there remains overwhelming confidence that acute fragilities ensure desperate policymakers continue to backstop the markets with liquidity abundance. Things do get crazy at the end of cycles – with lots of “money” slushing around to entice a wildly speculative marketplace. Increasingly, however, it is apparent that central banks have lost control of the massive pool of global speculative finance that they spawned and nurtured.

I believe history will look back to last October’s global, multi-asset class “flash crash” as a warning gone unheeded. Similarly, last week’s shock by the Swiss National Bank’s (SNB) to break the franc’s peg to the euro will also be seen as a harbinger of global market turmoil.”