Quotes of the Day: The Stories Central Bankers Tell

In Princes of the Yen, Japan’s Central Bankers and the Transformation of the Economy, a documentary film based on Richard Werner’s book of the same name, the author himself concludes with:

“The story when told by the central banks just does not add up. There is evidence that central banks work differently from what they would like us to believe as to how they work.

The world over, central banks hold significant, yet little understood, powers. Often independent, unaccountable and obscure, central banks operate in the shadows, yet their actions affect us all.”

During Fed Chair Jerome Powell’s press conference last Wednesday he virtually bragged how the mere mention of the Fed’s newly-engineered ability to buy corporate bonds (read junk bonds) by itself sucked capital right into the very same companies who found themselves recently starved of it. He followed, in a forceful voice, “and that’s a good thing!”

Well, okay, at first blush, sure, companies being able to raise capital when needed is a good thing. However, when the fundamental problem that was destined to make the next recession a virtual repeat of 2008, if not worse, was egregious over-leverage, incentivizing (by essentially promising to take past, and now future losses off of their hands) private actors (the same egregious risk-takers who took full advantage of the Fed’s largess between bubbles) to pour yet more capital (via bonds) onto already bloated businesses is anything but, in my estimation, a good thing!

Here’s Dr. Werner, from an October 2018 interview, answering the question pertaining to the 2008 credit crisis: What has changed, what was the legacy, what was the fallout, do we see what went wrong in those days?   emphasis mine…

“We’ve had many crises, over one hundred. And so what is the lesson of these crises? I think there is one clear lesson, and that is that we — and the key decision-makers, who are quite sophisticated, at the central banks and various institutions — don’t learn the lessons. Because I fear that we’re almost in a similar situation again, now 10 years after 2008, and the pattern of all of these crises is always the same.”

“Once we understand why we have these crises and how they work, then it would be much easier to look and say okay, what’s happening next.”

And here’s something yours truly wrote on February 11th of this year, before all hell broke loose:

“Risk remains markedly elevated, and without a positive resolution to the many stressors underlying the global economy, whether the next recession occurs this year, next, or whenever, the character of the corporate debt market and the dramatic departure of equity prices from the underlying fundamentals (in the U.S. in particular) virtually assures that the accompanying bear market in asset prices will rival modern history’s worst.”


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