Via Email, I received an interesting article from Albert Edwards at Societe Generale. Edwards claims citizens will soon turn their rage towards Central Bankers.

In an age of “radical uncertainty” how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty – unelected and virtually unaccountable central bankers? I expect central bank independence will be (and should be) the next casualty of the current political turmoil.

Evidence of the impact of monetary madness on assets prices is all around if we care to look. A parking spot in Hong Kong was just sold for record HK$5.18 million ($664,200).

What about the 3.5x oversubscribed 100-year Argentine government bond? Sure, everything has a market clearing price, even one of the most regular defaulters in history. But what concerned me most about the story was it was demand from investors
(“reverse enquiries”) that prompted the issue. Is it just me or can I hear echoes of the mechanics of the CDO crisis? But no one cares when the party is still raging and investors, drunk with the liquor of loose money, are blind to the inevitable catastrophe that lies ahead.

In the immediate aftermath of the 2008 financial crisis, politicians skillfully diverted the public’s’ anger away from themselves by scapegoating “the bankers”. After another eight years of economic stagnation that excuse no longer is tenable and politicians themselves are now taking the flak. But citizen revolutionaries will, I think, soon turn their fire on those
who I believe are truly responsible for their plight. We explained back in January 2010 in a note entitled Theft! Were the US & UK central banks complicit in robbing the middle classes? how central banks in the US and UK had deliberately stocked up massive housing bubbles prior to the Global Financial Crisis (GFC) to disguise the rapid rise in income inequality in both countries. Rapidly rising house prices allowed the middle classes to maintain the illusion they were getting richer so that despite stagnant real incomes they could continue to consume by extracting housing equity. We know how that party ended!

After the GFC central bankers have collectively spent the last decade stepping up the pace of money printing to new extremes in an attempt to drown the global economy in liquidity, while couching their actions in plausible theories such as “secular stagnation”.

For as the next inevitable economic and financial collapse comes ever nearer – a consequence of yet another global asset bubble bursting – politicians will be looking for the next sacrificial lambs to throw to the wolves. It’s hard to believe Yellen, Draghi and Carney won’t be those bleating lambs. But then the mob will devour the very independence of those institutions with the connivance of a political class willing to do anything to save their own skins.

Secular Stagnation Thesis

Edwards blasts Larry Summers’ secular stagnation thesis much the same as I have many times.

Summers cites five reasons why the Fed may be making a mistake. The one I really take issue with is this “With inflation and inflation expectations below target and declining, there would be little case for preemption even if inflation above target was a serious problem. But as we have seen, there are strong reasons for thinking that the Fed should be consistent with its mandate and let inflation rise above 2 percent.”

This comment shows exactly the same lack of insight that he and most of the economic elite showed in the run-up to the 2008 crisis – for there is loads of inflation. It resides in asset prices but it is ‘wanted’ inflation – the object of QE. The problem though in creating asset bubbles to try and reflate the economy is that when the asset bubble bursts and blows up the
economy, you are more likely to get the very deflation outturn that you were seeking to avoid in the first place. Even after the GFC these dudes simply have not learned that loose money polices to blow asset price bubbles is a catastrophic policy destined to end in failure.

Roots of Secular Stagnation

The seeds of secular stagnation, growing trade imbalances, an explosion of credit, rising income inequality, and a myriad of other problems dates back to August 15, 1971.

Total Credit Market Debt Owed


Following Nixon closing the gold window on August 15, 1971, credit soared out of sight to the benefit of the banks, CEOs, the already wealthy, and the politically connected.


  • Trump blames Mexico and China.
  • Larry Summers blames “Secular Stagnation”.
  • Ben Bernanke blames a “Savings Glut”.

Scapegoating Mexico and China helped get Trump elected. Scapegoating also allows the Fed and central banks to blame anything and everything but lack of a gold standard.

“Our Currency but Your Problem”

The source of global trading imbalances, soaring debt, declining real wages, and the massive rise of the 1% at the expense of the bottom 90% is Nixon closing the gold window.

At that time, Nixon’s Treasury Secretary John Connally famously told a group of European finance ministers worried about the export of American inflation that the  “dollar is our currency, but your problem.”

Balance of trade issues, soaring debt, declining real wages, and the demise of the US middle class are now our problem.

The Fed, ECB, Larry Summers, Paul Krugman, Donald Trump, and economists in general, cannot figure out what caused the problem. Instead, Bernanke, proposes a “savings glut”, and Larry Summers proposes “secular stagnation”.

  1. My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

The BIS did a study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

2. My challenge to the Secular Stagnation Theory of Summers has also gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced. By creating asset bubbles, central banks bring on the very deflation they strive to prevent.

3. For further discussion of balance of trade issues Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold’s Honest Discipline Revisited

Mike “Mish” Shedlock