Why are central bankers worried? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 4 January 2013
Why are central bankers worried? A  A  A

Baltimore, Maryland

Here in our diary, we offer no predictions for the New Year. How the hell do we know what will happen?

Instead, we offer advice. And we rest secure in the knowledge that no one will take it; so it will never be put to the test.

And we'll begin with some advice to central bankers, specifically Ben Bernanke, Janet Yellen & Co: stop worrying.

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    Fed becoming worried about stimulus side effects

    (Reuters) - Federal Reserve officials are increasingly concerned about the potential risks of the U.S. central bank's asset purchases on financial markets, but look set to continue its open-ended stimulus program for now.

    "Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet," the minutes said.

    Still, the Fed appeared likely to continue buying assets for the foreseeable future, having announced in December it was extending monthly purchases of $40 billion in mortgage securities and also buying $45 billion in Treasuries each month.

    Officials say they will keep interest rates near zero until the unemployment rate falls to 6.5 percent for as long as estimates of medium-run inflation do not exceed 2.5 percent.
Hey, fellas...you can stop worrying. What will happen, will happen. Que sera, sera.

Don't ya see? This is no time to get weak-kneed. The economy now depends on your zero interest rates and your EZ money. It's hooked. Addicted. Dependent. Take it away and you're going to see some sweatin' and shakin' - nobody wants to see that.

What people want to see is more spending by the government...higher stock prices...and more jobs. And that's why your efforts are so important. Without your $85 billion a month and zero interest rate policy, the feds wouldn't find it so easy to fund their deficits. And the zombies wouldn't find it so easy to feed at the public trough.

Besides, what are you worried about? Are you worried about market disruptions or panics? Yes, they are a worry for a sensible person. A prudent person wouldn't be able to sleep if he put the world's financial system at risk the way you have. But you've already proven that you're not very sensible or prudent. So stop your fretting.

In any case, there's no reason for it. Just look at Japan. It's got a mountain of debt. Still, no inflation. No panic. No disruptions. Japan would love to have some inflation. It's got more than twice as much government debt as GDP.

But you don't see Japan's honchos wringing their hands, do you? Instead, their top man - Shinzo Abe - is pushing the central bank to crank up the presses. He wants more money-printing...more EZ credit...and more stimulus.

Yes, it's delusional. Yes, it will be catastrophic. Yes, the man should be put into a prison or an insane asylum. But so should you all, frankly. You hand out pieces of paper and call it 'money.' Shameful.

Or maybe you're concerned that your money-printing will cause higher consumer price inflation? You should be so lucky! Imagine that you could get the price level to double. That would be great. It would cut the debt - in real terms -- in half. Instead of owing $16 trillion in today's money, the feds would owe $16 trillion in tomorrow's money, which was only worth half as much. That would be a good thing, no?

Apartments in Manhattan would sell for over $100 million. Gasoline would sell for $8 a gallon. Gold would go over $3,000 an ounce.

And you know what else would be good about that? Those damned, lazy good-for-nothing bond vigilantes would have to get back on the job. Doubling prices would mean cutting bond values in half - or more - too. As a practical matter, many bond investors would be wiped out.

And then, if you tried to print more money you'd have those vigilantes up in arms. Lenders would turn up their noses at your bond offers. And the foreigners - to say nothing of homegrown citizens - would rush to get rid of your currency.

Then, you'll have a clear choice. Either keep printing until hyperinflation blows up the entire economy...as happened in Zimbabwe and Argentina. Or stop the presses and try to re-establish the value of your money. You might also try to rehabilitate your reputations, but it will probably be too late for that. You are schmucks and by then the whole world will know it.

So don't worry. Relax. The problem will take care of itself.

Best wishes for 2013!

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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4 Responses to "Why are central bankers worried?"


Apr 6, 2013

Wonderful !!!!!! Great analogy !!!!! never seen before anything like it.



Apr 2, 2013

Love it, Love it, Love it ...
Christ Inc. !!!



Apr 1, 2013

.............peaking only when a breakaway unit, led by Martin Luther of Germany, set up competing companies...LOL..


santosh arora

Jan 4, 2013

i have noted the present negative attitude of President of USA & his team. they should look to their own Americans & within their own borders. they have been playing games with people of the world from last 200 years & this must stop. UN failed to bring the world order & have encouraged wars in Iraq, Egypt, Libiya, africa, now in Syria.
printing of USD will not solve the problem. this has been happening from last 5 years. Americans must learn to live with their own means.

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