Last week’s column discussed Japan’s latest and greatest efforts at quantitative easing (QE). This commitment to expand further the amount of liquidity entering the Japanese, and by extension the global, financial system has had predictable results. The primary, enormous impact was on the Japanese financial markets, where the yen sank by some 8 percent to 116 to the dollar, while the Nikkei share index soared. Elsewhere, the impact was more muted, with share prices rising in a generally undramatic but steady manner and government bond yields falling.
The declared object of what the IMF calls UMP – unorthodox monetary policy – and what everyone else calls QE is to stimulate the economy. Ultralow interest rates will induce companies to invest and households to consume, so that economic activity will rise and with it inflation rates; that, at least, is the theory. After more than six years’ experience of what is, in effect, the largest-ever experiment in monetary policy that the real world has ever seen, it is abundantly clear that the experiment has failed. Growth remains low and falling almost everywhere (the US is a partial exception), and, more critically, inflation rates are falling toward or through zero.
That central banks have not desisted from QE in the face of these poor results – the Japanese have massively increased it – suggests that they are actually targeting something else. That something is financial assets and, especially, share prices. This has been admitted to by several former central bankers and senior government officials, almost always after they have left office and are ungagged.
In other words, the financial markets are deliberately being rigged by the world’s leading central banks, either at the behest of, or with the connivance of, these banks’ governments.
Any idea that the central banks are independent, in the strategic sense, is baseless both in practice and according to the testimony of insiders.
Nevertheless, the general public – the mass of sheeple – want to cling to two core beliefs: One is that although the central banks and governments are deliberately distorting the markets and through them their economies, they are doing so with the best interests of “we, the sheeple” at heart. Secondly, this indirect manipulation of the markets, via monetary policy, is inherently different from direct manipulation, which, were it to occur, would be a criminal offense and would be treated as such.
As to the first, one can only say that if that’s what you want to believe, that’s your prerogative. The second belief, however, has been systematically destroyed over the last seven years, as the extent of systemic manipulation of almost every major financial market by the largest financial institutions – the ones the public entrusts with most of its money – has been identified, investigated and exposed in all its details.
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The latest such “revelation” came on Wednesday, when the UK’s Financial Conduct Authority (FCA) – the successor to the utterly discredited FSA, which did nothing to stop and much to encourage the practices that led to the global crash of 2008 – announced that it was imposing fines totaling $1.7 billion on five huge banks “for failing to control business practices in their G10 spot foreign-exchange trading operations.”
In plain language, these banks were found to have rigged the global currency market – by far the largest financial market in the world.
By now, surely, after these and/or other banks have been exposed as having manipulated the gold market, the government bond markets and much else, few people will be surprised at more of the same. Many, however, will be sickened at the pathetic wrist slap that these paltry fines represent to these institutions – and more so by the fact that no one will be sent to jail for robbing the general public (yes, really, someone loses when the banks rack up huge trading profits).
How is it that in every case of banks rigging markets, whether in the UK or the US, the same pattern of a multibillion- dollar fine and some discreet “letting go” of individual traders is repeated. You could read several millions words of analysis on that subject, but here is the answer encapsulated in one paragraph: “The banks have been allowed to investigate themselves,” one source familiar with the investigation told Reuters. “The investigated decide what they want to investigate, what they admit to, and how much they will pay.”
That can only mean that the relevant regulatory authorities are in cahoots with the bankers. It means that the banks run the regulators and, by extension, the government. This, too, is not “news,” after having been fully exposed by the taped conversations inside America’s Securities Exchange Commission regarding the SEC’s oversight of Goldman Sachs.
Is there any alternative? Well, yes, according to this, just in from Afghanistan: The Kabul Bank’s former chairman Sherkhan Farnood and former CEO Khalillulah Ferozi were sentenced live on television, after a two-day appeal against earlier sentences of five years in prison. They have already served more than four years of the original sentence. A panel of five judges at the Kabul Appeals Court also fined Farnood more than $237 million.
The court also ordered the assets of Mahmood Karzai and Hasin Fahim, brothers respectively of the former president and deputy president, along with 17 other defendants, frozen until their debts are repaid.www.pinchaslandau.com
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