Much of my recent interest in economics and finance stems from an enquiry into the, to me, previously completely mysterious world of financial markets. So I have sources from that world which offer a completely different perspective of the world from that which I grew up in.
Two items hit my inbox recently which are curiously related, this first is from one Nomi Prins, who probably knows where at least some of the bodies are buried, having worked for the Goldmans and the Bear Stearns of this world before becoming a freelance author and journalist. What follows is extracted from what is largely a plug for her latest book, ‘Collusion: How Central Bankers Rigged the World’
Since the financial crisis, ..…. the G7 collectively fabricated $21 trillion worth of money. [US contribution $4.5 trillion] They took the liberty then to buy government bonds, corporate bonds, mortgage bonds …[etc]
These “conjured money” efforts did nothing to alter the fundamental values of companies. Companies could borrow money and buy their own stocks on the cheap, increasing the size of corporate debt and the level of the stock market to record highs.
Because money was so cheap and interest rates so low, no other investment opportunities could offer the same high returns, so speculators piled into the stock markets, further elevating their levels.
That tallies fairly closely with my view of what has happened since 2008.
The idea is that if the cost of money is cheap enough, private banks will lend to the general population and businesses. The ultimate goal is that the money can be used to expand enterprise, hire people and develop a stronger economy.
And that tallies with my recollection of what Gordon Brown and or Alastair Darling said when they were explaining why a banking bailout and QE was the easiest way to sort out the mess. Adding austerity to the mix, as far as I remember, was George Osborne’s cunning plan. Since 2010 I have noticed a lot of commentators have been puzzling over the non-appearance of any inflation. This appears to have mystified central bankers and academic pundits and apparently still does, judging by the other piece that landed the other day. Mind you they persist in saying that unemployment is at historic lows, so one has to wonder where they get their information.
This second reference comes courtesy of ‘Coppola Comment’ from California and is actually reposted from 2014, on the basis that it is still highly relevant. It refers to the study of two wizards, Yi Wen, Assistant Vice President and Economist, and Maria A. Arias, Research Associate of the Federal bank of St Louis. You’d think they’d have sussed out what was going on but apparently they hadn’t.
They have managed to come up with some cockamanie theory that it’s all down to lack of velocity and Americans are keeping all their money in the bank. Is it likely that if John and Jane Doe had $4.5 Trillion in their bank accounts they wouldn’t be buying anything? I make that approximately $22,500 each.
So are central bankers stupid, which might explain the state of the global economy.
Or is it more likely, as Nomi Prins implies in her title, that they are rigging the world? I couldn’t possibly comment.