Central Bankers are Trying to Keep You Off the Scent

A lot has happened since we broke for Easter last week.

The release of the lightly redacted Mueller Report confirmed the lack of collusion by team Trump with the Russians, although that hasn’t stopped the rabid anti-Trump crowd from believing otherwise.

And then on Easter Sunday we heard news of the tragic events in Sri Lanka, where Islamic Terrorists set off bombs around the country, targeting Christian Churches and hotels.

The death toll from the attacks, at 290 people, represents the largest single terrorist attack since 9/11. Our thoughts and prayers go out to Sri Lanka at this sad time.

It appears as though the world is winding back the clock a few thousand years. Christians are again being persecuted on a regular basis.

Even former President Barrack Obama couldn’t bring himself to mention their name, referring to them as ‘Easter worshippers’ in a tweet. Weird.

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The current state of the markets

While a lot was going on in the political world, markets picked up where they left off doing not very much. Overnight, US stocks were flat.

Most of the action took place in the oil market. Brent crude jumped around 2.5% to a six-month high following a move by the US government to stop oil exports from Iran. Apart from that, most commodities were in the red.

While we wait for earnings season in the US to kick off and give the market some near-term direction, let’s turn to the ongoing insanity of central bankers. They are, it seems, confused about inflation. From Karen Maley at the Financial Review:

It’s the dismal reality that both frustrates and confuses policy makers at the world’s major central banks: despite their best efforts over the past decade, inflation remains stubbornly weak.

Jerome Powell, the head of the powerful US Federal Reserve, voiced his exasperation with the situation at a press conference last month. “We’re really 10 years deep in this expansion, and inflation is still not clearly meeting our target,” he complained. Low inflation, he added, is “one of the major challenges of our time”.

Persistently weak inflation is all the more exasperating for central bankers because it seems to fly in the face of reputable economic theory.’

Are these people stupid, or disingenuous?

Are they so narrow minded that they cannot expand their definition of inflation to asset prices?

Because if you do, you see inflation EVERYWHERE.

These days, central bank created liquidity flows into asset prices, not wages and goods and services. It encourages the accumulation of debt, not equity (which is real wealth).

Moreover, the more that central banks interfere with the economy by keeping interest rates low, the more they contribute to DEFLATION of wages and prices of goods and services.

How central banks are contributing to deflation

Inflation or deflation of anything — be it wages or the price of goods and services — is simply a function of supply and demand. Persistently low interest rates encourage production and therefore the SUPPLY of goods and services.

When real interest rates are negative, as they are now, there is very little constraint on production. Capital is cheap, which makes it relatively easy to establish production lines and boost supply of a range of goods and services.

When supply is greater than demand, prices fall. Or at the very least, they don’t increase too much.

Now, consider an environment where real interest rates are positive. This would increase the cost of capital and discourage investment in increasing the supply of goods and services. Less supply and stable demand means higher prices.

Higher prices = inflation.

This is a very simplified version to get a point across. But it’s broadly applicable. If central banks increased interest rates now, you would see deflation in asset prices and, after a delay, inflation in goods and services prices.

That’s because the higher interest rates would take out the marginal producer and eventually lead to a decrease in supply. Only the stronger producers would survive and they would emerge with stronger pricing power.

This is economics 101. But central bankers feign surprise and confusion, and simply try to do ‘more’. That’s because ‘more’ increases assets prices and encourages the accumulation of even greater amounts of debt.

And that, dear reader, is the role of the modern central banker. They are there to support the 1%, not the people. So all this blather about being confused by the lack of inflation is just that. As I said, inflation is everywhere, from tech stocks to iron ore.

Central bankers know it. They’re just trying to keep you off the scent.


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Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts.

At The Rum Rebellion, fake news and unethical political persuasion are not in the least bit tolerated. It denounces the heavy amount of government influence which the public accommodates.

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