Welcome to the 21st-century era of central banks. Their product debt has conquered the world, with public debt reaching an unprecedented 97 trillion USD in 2023.
As Darren Winters points out, even the most successful corporation does not come close in dollar global market penetration for their products and services.
With a global GDP of $105 trillion and a global debt of 97 trillion dollars in 2023, central banks and their secret shareholders sit at the apex of the human food chain. The future year’s global productivity is already in the pockets of central banks in the form of issued debt.
Never in the history of humanity has an institution had the unchecked power to influence so many peoples, nations and the world.
Central banks, their governors, and secret shareholders are the modern-day Emperors of the 21st century
By managing the supply of currencies and setting base rates, which impact borrowing costs, central banks can indirectly influence election results, change the policy direction of existing governments and even topple existing governments.
Central banks are the Shadow Government
In October 2022, the Bank of England BOE did not like Truss’s mini-budget, which proposed cutting taxes and increasing spending, so they succeeded in making Truss the shortest-serving PM.
BOE’s decision to deliberately tighten and crash the UK bond market in 2022 and remaining inactivity for five days, despite 300 billion pounds wiped off the value of gilt, which sent GDP to a record-low $1.035 on September 26.
The 2015 euro sovereign debt crisis, Greece 2015 held a referendum on whether or not to accept the austerity that the ECB was demanding at the time. Greek citizens said no, but the government imposed austerity measures anyway.
In Italy in 2018, the right and left-wing coalition governments wanted to run a budget deficit, spending large sums of money while cutting taxes.
But that raised ECB’s President Christine Lagarde’s eyebrows. The same rule book came out. ECB let the Italian bond market crash, forcing up the cost of government borrowing, and the coalition Italian government capitulated negation on its election promises of more public investments and less taxes
However, the ECB did not approve the coalition expansionary fiscal policy and allowed the Italian bond market to crash, forcing up the cost of government borrowing.
Even in 1994, President Bill Clinton wanted to spend more but ultimately caved into Fed pressure and did a 180 U-turn on fiscal policy, and he became known as a fiscal conservative.
So, political leaders stand on their soapboxes, making promises to the people. But a tiny group of elite central banks gather behind closed doors, deciding whether those promises will be honoured or broken.
Central banks decide the trajectory of global financial markets
The takeaway from the 2020 Global Lockdowns is that the engine driving asset prices is not macroeconomic fundamentals but central bank liquidity.
Despite the global economy being in lockdown, businesses closed, and 10 pm curfews, a bull market rally in risk assets played out.
Central bank liquidity is the fuel propelling asset prices.
The US Public Deficit grew by over 6 trillion dollars in the two years of lockdowns during the Great bull market where cash was trash.
Changes in the central banks’ liquidity create boom-bust cycles
The definition of a recession is a sharp decline in business investment due to tighter liquidity conditions, and it is a central bank tightening that shuts down investments, with the symptoms being rising unemployment.
You have to laugh when the other day a headline from what used to be a respectable international business newspaper read:
“Fed Chair Powell would not be bullied into making emergency rate cuts by the markets.”
That was in response to a recent global selloff in risk assets triggered by 20 Trillion Yen of liquidity drained from the market due to interest rate differences between the Fed remaining restrictive and BOJ tightening.
Borrowing more expensive Yen to invest in US markets when the Fed was procrastinating from restrictive to, at the very least, neutral policy, making a US deep recession highly probable no longer justified the risks.
What a hot, volatile summer with asset portfolios on the verge of meltdown, like gelato on a scorching summer day, due to the 20 Trillion Yen carry trade liquidity withdrawn from the market.
Central banks knew they had to do something to prevent a market rout from becoming a historic crash, as a tsunami of leveraged positions would soon be liquidated, due to margin calls forcing selling.
Summer volatility was triggered not by recession fears but by central bank liquidity evaporating from the market due to BOJ and FED interest rate policy variations
So, Fed Chair Powell refused to be bullied by the market to make emergency cuts. Instead, Powell probably bullied his BOJ counterpart to coo like a Dove.
HAKODATE, Japan, Aug 7 (Reuters) – The Bank of Japan’s influential deputy governor said on Wednesday the central bank will not hike interest rates when markets are unstable, playing down the chance of a near-term hike in borrowing costs.
But with no Fed July rate cuts and continuing claims edging up and reaching their highest level since the end of November 2021, underscoring that unemployment is still trending upwards. Why is the Fed waiting to pull on the joystick, move policy from restrictive to at least neutral, and lift the nose? Policy time lag is anywhere from six to twelve months. Unemployment is already knocking on the door.
The fear is just as the Fed was too loose for too long, the Fed could be too tight for too long.
Central banks are the market. How can they be bullied by themselves? That is why Darren Winters found the comment funny.