Nomi Prins: A Decade Of G7 Central Bank Collusion... And Counting
ZeroHedge.com Aug 30, 2017 10:20 PM
Authored by Nomi Prins,
Since late 2007, the Federal Reserve has embarked on grand-scale collusion with other G-7 central banks to manufacture a massive amount of money. The scope and degree of this collusion are historically unprecedented and by admission of the perpetrators, unconventional in approach, and - depending on the speech - ineffective.
Central bank efforts to provide liquidity to the private banking system have been delivered amidst a plethora of grandiose phrases like “unlimited” and “by all means necessary.” Central bankers have played a game with no defined goalposts, no clock rundown, no max scores, and no true end in sight.
At the Fed’s instigation, central bankers built policy on the fly. Their science experiment morphed into something even Dr. Frankenstein couldn’t have imagined. Confidence in the Fed and the U.S. dollar (as well as in other major central banks globally) has dropped considerably, even as this exercise remains in motion, and even though central bankers have tacitly admitted that their money creation scheme was largely a bust, though not in any one official statement.
Cracks in the Facade On July 31, 2017, Stanley Fischer, vice chairman of the Fed, delivered a speech in Rio de Janeiro, Brazil. There, he addressed the phenomenon of low interest rates worldwide.
Fischer admitted that “the effects of quantitative easing in the United States and abroad” are suppressing rates. He also said there was “a heightened demand for safe assets affecting yields on advanced-economy government securities.” (Actually, there's been heighted demand for junky assets, as well, which has manifested in a bi-polarity of saver vs. speculator preference.) What Fischer meant was that investors are realizing that low rates since 2008 haven’t fueled real growth, just asset bubbles.
Remember, Fischer is the Fed’s No. 2 man. He was also a professor to former Fed Chair Ben Bernanke and current European Central Bank President Mario Draghi. Both have considered him to be a major influence in their economic outlook.
The “Big Three” central banks — the Fed, the European Central Bank and the Bank of Japan — have collectively held rates at a zero percent on average since the global financial crisis began. For nearly a decade, central banks have been batting about tens of trillions of dollars to do so.
They have fueled bubbles. They have amassed assets on their books worth nearly $14 trillion. That’s money not serving any productive, real-economy purpose – because it happens to be in lock-down.
In his speech, Fischer channeled Bernanke, Yellen and other major central bank leaders who, having been so enthusiastic about the possibilities, later intimated that low rates and massive asset buying and/or holding programs alone aren’t enough to stimulate economic growth. Which begs the question, why they've continued for so long.
As this policy was propagated by the Fed, Fischer essentially admitted that the Fed caused low interest rates globally while failing to achieve the growth it promised. With a decade of failed policy experiments behind us, why should we have faith that the Fed — or any other central bank — has any clue about what to do next? The answer is simple. We shouldn’t.
As Fischer went on to tell the Financial Times on August 15, 2017: “It took almost 80 years after 1930 to have another financial crisis that could have been of that magnitude. And now after 10 years everybody wants to go back to a status quo before the great financial crisis. And I find that really, extremely dangerous and extremely shortsighted. One can understand the political dynamics of this but one cannot understand why grown, intelligent people reach the conclusion that [you should] get rid of all the things you have put in place in the last 10 years.”
In other words, why should we hope that a 10-year global “solution” to instill long-term financial stability and economic growth, even as it’s been repeatedly touted as such, should do what central bankers said it will? The answer again is, we shouldn't.
The Winners and LosersSince the global financial crisis, the biggest G7 winners have been the Big Six US banks that profited from access to cheap money. They benefitted from central bank purchases of their securities that exaggerated the value of the remaining securities on their books. They used “printed” or electronically crafted money to stockpile cash and fund buybacks of their own shares and pay themselves dividends on those shares. By producing and distributing artificial money, central bankers distorted reality in global markets. Multi-national banks were co-conspirators in that maneuver.
After the Big Six banks passed their latest round of stress tests, they began buying even more of their own shares back. The move elevated their stock prices further. The largest U.S. bank, JP Morgan Chase, announced its most ambitious program to buy back its own shares since the 2008 crisis, $19.4 billion worth. Citigroup followed suit with a $15.6 billion buy-bank plan.
The Fed’s all-clear was just another version of quantitative easing (QE) for banks. Instead of buying bonds via QE programs, the Fed greenlighted banks to further speculate in their own stocks, creating more artificiality in the level of the stock market. In all, US banks have disclosed plans to buy back $92.8 billion of their own stock to say thank you to the Fed for the “A.” That was piling on to their existing trend; according to S&P Dow Jones Indices, “Stock repurchases by financial companies in the S&P 500 rose 10.2% in the first quarter [of 2017] and accounted for 22.2% of all buybacks.”
More ominous than that was another clear sign that a decade of money-conjuring collusion helped the same banks that caused the last crisis. Proof came in the form of a letter to the U.S. Senate banking committee from Thomas Hoenig, the vice-chairman of the U.S. Federal Deposit Insurance Corp. (FDIC), the government agency in charge of guaranteeing people’s deposits. He wrote that in 2017, U.S. banks used 99% of their net earnings toward purchases of their own stock and paying dividends to shareholders (including themselves).
They thus legally manipulated markets in plain sight by pushing their own share prices up with cheap money availed to them by the central bank that is supposed to regulate them.
As of this year, global debt levels stood at 325% GDP, or about $217 trillion. The $14 trillion of assets the G-3 central banks held on their books is equivalent to a staggering 17% of all global GDP. The European Central Bank (ECB), Bank of Japan (BOJ) and Bank of England are still buying collectively $200 billion worth of assets per month.
In the wake of that buying, non-cash instruments - crypto currencies and hard assets like gold, unrelated to the main G-7 monetary system - have become increasingly attractive on the fear that in another major downturn or crisis, central banks and private banks will retract cash and liquidity from their customers.
In that likely event, banks will protect themselves and turn to governments and central banks again. In the absence of some sort of outside central bank benchmark, like a modern gold standard or use of currency basket benchmarks like the IMF’s Special Drawing Rights (SDR), currency wars will continue to be fought. With rates hovering between zero and negative in some countries, there would be little to no room to maneuver in the face of another crisis. Thus - another thing has become increasingly clear: Central bankers have demonstrated gross negligence regarding the consequences of their monetarily omnipotent actions.
If rates were to rise higher in the US (and I don't think we're in for more than another 25 basis points, this year which is under last year's Fed forecast) so would the cost of servicing that debt. That would hurt companies domestically and abroad, induce more defaults and a rush by the banks involved in derivatives associated with that debt to concoct more toxic assets. The vicious cycle of central bank bailouts would reverberate again.
Savers and pensioners are getting close to no interest on their nest eggs. Depositors are paying banks to house their money through fees that offset negligible interest. Small businesses have to jump through hoops to get loans for expansion purposes. Wages are stagnant. Ultimately, big banks had played the system — and us — again, this time with central banks helping to fund them. The threat of an even larger collapse looms as stock markets and global debt have been propelled higher.
As we approach the ninth anniversary of the collapse of one of my former employers, Lehman Brothers, and the 10th anniversary of the beginning of central bank collusion into the financial crisis, there has been – no change – in global G7 central bank monetary policy.
Jackson Hole offered a different spin on the same old verbiage, indicating that a bit of nipping here, means a lot of tucking somewhere else. Janet Yellen took what could be her last hoorah to craft her legacy as potential Fed Chair nominee and current Trump National Economic Council Director, Gary Cohn, awaits his possible turn. And if it’s not him, it’ll remain her, or someone else that will perpetuate more of the same policies.
While speaking to the monetary policy glitterati at central bank base-camp, Yellen declared any dialing back of regulatory reform measures for banks should be “modest.” She said, “The evidence shows that reforms since the crisis have made the financial system substantially safer.” There was no mention of the unprecedented decade of easy money bolstering the financial system - that makes it appear - solvent.
For all the cheap cash offered up, much at the expense of taxpayers who will bear the burden of the associated debt this enabled, and the bank fraud it plastered over, it will be ordinary citizens who will pay the price – yet again. In the era of money fabrication and monetary policy collusion, a decade of ongoing “emergency” procedure spells an eventual recipe for disaster.
Big US banks are bigger than before the crisis. They float atop a life-raft, among other things, of $4.5 trillion Fed asset book, as part of a total $14 trillion G7 central bank asset book. Yellen’s speech was code for preserving the status quo and central bank elasticity high. As for Cohn’s sentiment on the matter? Well, he feels the same. So does Trump. So did Obama.
Take the composite of all that and what are you left with? Ongoing G7 central bank monetary policy collusion, zero percent interest rates globally, unlimited QE potential, and major asset bubbles.
Most Americans live paycheck to paycheck
No matter how much you earn, getting by is still a struggle for most people these days.
Seventy-eight percent of full-time workers said they live paycheck to paycheck, up from 75 percent last year, according to a recent report from CareerBuilder.
Overall, 71 percent of all U.S. workers said they're now in debt, up from 68 percent a year ago, CareerBuilder said.
While 46 percent said their debt is manageable, 56 percent said they were in over their heads. About 56 percent also save $100 or less each month, according to CareerBuilder. The job-hunting site polled over 2,000 hiring and human resource managers and more than 3,000 full-time employees between May and June.
Most financial experts recommend stashing at least a six-month cushion in an emergency fund to cover anything from a dental bill to a car repair — and more if you are the sole breadwinner in your family or in business for yourself.
While household income has grown over the past decade, it has failed to keep up with the increased cost-of-living over the same period.
Even those making over six figures said they struggle to make ends meet, the report said. Nearly 1 in 10 of those making $100,000 or more said they usually or always live paycheck to paycheck, and 59 percent of those in that salary range said they were in the red.
Money Laundering Scandal At Australia's Largest Bank Triggers Another Call For Ban On Cash
ZeroHedge.com Aug 14, 2017 5:31 PM
Authored by Mike Shedlock via MishTalk.com,
Ian Narev, the CEO of Commonwealth Bank of Australia (CBA), the nation’s largest bank is set to step down amid money laundering charges.
Money laundering is big business in Australia because regulations do not cover lawyers, real estate agents, accountants, and CEOs ignoring warnings from police.
Despite the obvious problem, it’s cash itself that gets the blame.
There are several stories here buts let’s start with Australia’s Biggest Bank Says CEO Will Retire Amid Money-Laundering Scandal.
Commonwealth Bank of Australia Chief Executive Officer Ian Narev will step down by the end of June 2018 as the nation’s largest lender seeks to mitigate the fallout from a money-laundering scandal.
Pressure is building on Commonwealth Bank amid allegations by the nation’s financial crimes agency that drug syndicates used its network of deposit machines to launder cash, despite warnings from police. The nation’s securities regulator opened its own inquiry last week and the governor of the central bank called for accountability in the banking industry, which is beset by a string of scandals.
Narev, 50, has presided over a market-topping stock price since he took the helm at the start of December 2011. Last week, he delivered the lender’s eighth consecutive record profit.
His achievements have been overshadowed by the money-laundering allegations — the third major public-relations scandal he has faced as CEO. The bank has paid A$29 million ($23 million) in compensation to customers who were allegedly given poor financial advice, and has faced accusations it wrongly failed to honor insurance claims to sick clients.
The financial crime agency, Austrac, alleges that Commonwealth Bank failed to report either on time or at all suspicious transactions through its network of automated cash deposit machines totaling more than A$624 million, and it failed to monitor the activities of drug syndicates even after being alerted by police. The bank has blamed most of the breaches on a software coding error which has since been fixed.
The allegations are the latest in a series of scandals in Australia’s banking industry, ranging from giving poor advice to wealth-management customers to allegations the nation’s three other biggest banks manipulated a benchmark swap rate.
Moral of the Story
With share prices high after three scandals, the moral of the story must be CEO crimes pay. What other lesson could there possibly be?
Australia’s hot property market is an attractive haven for criminals, with estimates that billions of dollars of dirty money is being laundered through residential property.
Australia’s anti-money laundering law does not cover real estate agents, lawyers and accountants, despite promises when the law was enacted in 2006 that the legislation would be widened.
ANZ’s head of financial crime, Guy Boyd, is scathing of the failure of subsequent governments to extend the legislation.
Australia’s housing market has been targeted by money launderers from countries including Papua New Guinea, Malaysia and China.
Let’s Blame Money Itself
Given than scandals provide perfect cover to place the blame on innocent people and innocent things, no one should be surprised by this outcome: CBA Scandal Blamed on ‘Outdated’ Banknotes.
The Commonwealth Bank money-laundering scandal has given ammunition to the anti-cash crusade, with one analyst asking whether “outdated” $100 and $50 notes are the “root of the problem”.
The nation’s largest bank is facing allegations of more than 53,000 breaches of anti-money laundering and counter-terrorism financing laws, the majority relating to large cash deposits made at CommBank ATMs.
In a note earlier this month, UBS analyst Jonathan Mott said the CommBank scandal raised “four critical questions”.
“Is the root of the problem the outdated high denomination cash notes?” he wrote. “Should Australia move to phase out cash given its role in the black economy (including: proceeds of crime, money laundering, tax avoidance, welfare fraud)?”
The Black Economy Taskforce’s final report is due in October. Gee, I can hardly wait.