The Silver Age Of The Central Banker (Ends Badly)

Saturday, February 20, 2016
By Paul Martin

by Ben Hunt via Salient Partner’s Epsilon Theory blog,
ZeroHedge.com
02/20/2016

For the past six plus years, ever since the Fed launched QE1 in March 2009, we have lived in an era I’ve described as the Golden Age of the Central Banker, where the dominant explanation for why market events occur as they do has been the Narrative of Central Bank Omnipotence. By that I don’t mean that central bankers are actually omnipotent in their ability to control real economic outcomes (far from it), but that most market participants have internalized a faith that central bankers are responsible for all market outcomes.

As a result, an entire generation of investors (we investors live in dog years) has come of age in a market where fundamental down is up and fundamental up is down. What’s the inevitable market reaction to real world bad news – any bad news, regardless of geography? Why, additional accommodation by the monetary Powers That Be, united in their common cause to inflate financial asset prices through large scale asset purchases, must surely be on the way. Buy, Mortimer, buy! During the Golden Age of the Central Banker, monetary policy is truly a movable feast for investors.

But the Golden Age of the Central Banker has now devolved into the Silver Age of the Central Banker, and monetary policy is no longer the surefire tonic for investors it was even a few months ago. In less poetic terms, the Coordination game that dominated the strategic interactions of central banks from March 2009 to June 2014 is now well and fully replaced by a Prisoner’s Dilemma game in the long run and a game of Chicken in the short run. As a result, monetary policy is now firmly a creature of each nation’s domestic politics, and the Narrative of Central Bank Omnipotence is in turn devolving into a Narrative of Central Bank Competition.

Why the structural change in the Great Game of the 21st century? Because this is what ALWAYS happens during periods of massive global debt, as the existential imperatives of domestic politics eventually come to dominate the logic of international economic cooperation. Because this is what ALWAYS happens when global trade volumes roll over and global growth becomes structurally challenged.

Yes, that’s right, global trade volumes – not just values, but volumes, not just in one geography, but everywhere – peaked in Q3 or Q4 2014 and have been in decline since. That’s pretty much the most important fact I could tell you about this or any other period in global economic history, and yet it’s a fact that I’ve never seen in a WSJ or FT article, never heard mentioned on CNBC.

The Rest…HERE

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