Are You Incompetent Enough to Be a Central Banker?

Not that you need it, but if you ever wanted further proof that there’s one law for some and another for the rest of us, then here it is.

If or when, the Australian government’s proposed ‘Currency (Restrictions on the Use of Cash) Bill 2019’ is passed into legislation, then, according to Yahoo Finance…

Australians could face up to two years’ jail time and/or a $25,200 penalty for paying $10,000 or more in cash for goods and services.’

The proposed bill — a product of the Black Economy Taskforce — is aimed at cracking down on tax evasion, money laundering and criminal activities.

If you believe the government’s intentions are pure of heart, then these reasons are all very commendable.

But the bill just might be a Trojan Horse.

Most likely the real intent of the bill is to trap our money in the banking system.

If so, it makes it much easier for the clueless RBA to impose negative interest rates on our deposits.

The proposed bill just happened into existence around the same time as the IMF published a working paper on ‘Cashing in: How to make negative interest rates work’.

Sheer coincidence or is there a coordinated effort to line the ducks up before the next crisis?

Whatever the real motive might be, the proposed legislation wants to limit cash payments to $10,000 (to businesses with an ABN). Any transgression risks ‘up to two years’ jail time and/or a $25,200 penalty.

Based on this legislative benchmark, what sort of punishment should someone receive who is guilty of illegally paying $650 million (€400 million)?

Surely there must be jail time and/or loss of career and/or massive fine to pay?

Well, that depends on who you are, not what you’ve done.

This is the headline from the 19 December 2016 edition of the UK Independent

Christine Lagarde convicted: IMF head found guilty of criminal charges over massive government payout - USD - 5-09-19

Source: UK Independent

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The IMF chief — the very institution that wants to trap our cash in the bank — had no qualms in paying out taxpayer cash to one of her boss’s mates.

As reported by the UK Independent (emphasis is mine):

International Monetary Fund chief Christine Lagarde has been convicted over her role in a controversial €400m (£355m) payment to a businessman.

French judges found Ms Lagarde guilty of negligence for failing to challenge the state arbitration payout to the friend of former French President Nicolas Sarkozy.

Christine Lagarde was proven, in a court of law, to have been negligent in the conduct of her duties.

There were no checks or balances done. Lagarde simply rubber-stamped the payment of €400m (of taxpayer funds) to Sarkozy’s friend.

A good old ‘you scratch my back and I’ll scratch yours’ deal.

What was Lagarde’s punishment for the gross dereliction of her duty to the French taxpayers?

…following a week-long trial in Paris, [Lagarde] was not given any sentence and will not be punished.’

Those who make up the laws by which we’re held accountable, never seem to be held to the same account.

Perhaps this was a momentary lack of judgement by Ms Lagarde?

Perhaps she really does possess the prerequisite skills to hold offices with great responsibility?

In the 30 August 2019 edition of the UK Telegraph, there was this succinct evaluation on Ms Lagarde’s time in the chair at the IMF:

Just how many economies does Christine Lagarde have to ruin before the penny finally drops? The woman who bequeathed to France a ruinous budget deficit, and who presided over the policies that inflicted the worst recession ever recorded on Greece, now looks set to rack up the worst losses in the history of the International Monetary Fund. The bailout of Argentina was meant to be the crowning achievement of her career, but instead the country has plunged into chaos, and will almost certainly have to default on the billions the fund has lent it.

In the real world, a convicted criminal with such an appalling career track record would be nigh on unemployable.

However, the world of the Eurocrat is far removed from any reality you or I know.

Theirs is a world of butt kissers, back scratchers, turners of the blind eye and those with tin ears.

The more corrupt, incompetent and totally useless you are, the greater your career prospects.

A world that’s tailor made for someone of Lagarde’s limited practical ability.

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So what’s next for Christine Lagarde?

The rubber stamp is hovering over her being appointed to replace Mario Draghi as President of the European Central Bank (ECB).

In the 19 July 2019 edition of The Gowdie Letter, we made this assessment of Lagarde’s pending appointment…

…this is what’s being considered out loud…

In a cashless world, there would be no lower bound on interest rates. A central bank could reduce the policy rate from, say, 2 percent to minus 4 percent to counter a severe recession.

Put the ‘cashless world’ comment to one side…the IMF is already well-advanced in its planning on how to make that a virtual reality…

The purpose of the extract is to illustrate just how far into the negative the policy makers could go when the economic story turns bad…no lower bound.

The recent appointments of Christine Lagarde to President of the ECB and Ursula von der Leyen to the President of the European Commission, keeps the pathway open to much, much lower rates.

They have both demonstrated their establishment credentials…they are very much ‘go along to get along’ personalities.

That single attribute is what makes qualifications and ability irrelevant.

On the appointment of Lagarde to the head job at the ECB, The New York Times wrote on 15 July 2019…

She’s run the I.M.F. She’s a lawyer. She’s not an economist’.

The powers that be — the ones who have no intention of telling the truth — want a puppet…one who will say and do their bidding.

Lagarde was the perfect choice.

Here’s an extract from the 5 April 2016 edition of the Wall Street Journal

Subzero interest rates in Europe and Japan are “net positives” for the global economy, International Monetary Fund chief Christine Lagarde said Tuesday, though she warned that the side effects of unorthodox central-bank policies should be closely monitored…

We see the recent introduction of negative interest rates by the ECB and Bank of Japan—though not without side effects that warrant vigilance—as net positives in current circumstances,” Ms. Lagarde said.

Those comments cemented the ECB job for Christine.

And as expected, Christine is delivering what her EU puppet masters expect from her.

As reported by Reuters on 30 August 2019 (emphasis is mine):

With growth slowing and inflation persistently undershooting the ECB’s target, the bank has all but promised fresh stimulus when policymakers meet on Sept 12, one of the last measures ECB chief Mario Draghi can take before stepping down on Oct 31.

“The ECB has a broad tool kit at its disposal and must stand ready to act,” Lagarde said in written answers to the European Parliament’s committee on economic affairs.

While I do not believe that the ECB has hit the effective lower bound on policy rates, it is clear that low rates have implications for the banking sector and financial stability more generally,” she added.

The highlighted section is straight from the IMF ‘How to make negative interest rates work’ playbook.

European savers are about to be hit by much lower rates

How much lower?

No one knows where the lower bound marker is…this is all very experimental.

If results are anything to go by, then this experiment should be stopped…NOW!!

Why?

The ECB — like all central banks — have an inflation target of near 2%.

Why you would want people to chase their tail each year by having to earn more to pay higher prices, is beyond me. But that’s central banks for you.

In spite of its concerted stimulus efforts, the ECB has failed to maintain the inflation line above the 2% mark.

Euro Area Inflation Rate - 5-09-19

Source: Trading Economics

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Negative rates and QE have not delivered the targeted objective.

The recent plunge in Euro area inflation should give pause for thought on persisting with a policy that is obviously not working.

Perhaps, this latest retreat from the 2% level is a temporary lull and inflation will pick up again?

On 6 June 2019, Reuters reported (emphasis is mine)…

A key market gauge of euro zone inflation expectations, the five-year, five-year forward inflation swap, on Thursday fell to within sight of record lows hit in 2016 ahead of a European Central Bank meeting.

The five-year, five-year forward fell to 1.2739%, its lowest point since 2016 when it fell to a record low around 1.25%.

What’s happened to the ECB’s preferred inflation gauge — the five year, five year forward inflation swap — since then?

Last week the inflation gauge — looking out to the next five years — was at 1.2%.

The market isn’t seeing inflation in the Euro area’s future.

But in central banker land, that failure is translated into ‘we need to do even more of the same…go harder, go deeper, go longer’.

And Christine go along, to get along Lagarde is just the person for the job.

Lagarde did point out…‘that low rates have implications for the banking sector.’

However, Christine is a bit late to the party on recognising these implications.

In April 2017, the  Bank for International Settlements (BIS) published a research paper titled ‘The influence of monetary policy on bank profitability’.

Here’s an extract (emphasis is mine):

This paper investigates how monetary policy affects bank profitability. We use data for 109 large international banks headquartered in 14 major advanced economies for the period 1995–2012.

The results suggest that the implementation of negative interest rates does not appear to have been beneficial for the banks: in contrast to expectations, funding costs increased and interest rate margins decreased. The combination of the two factors indicates that bank profitability will most likely be eroded by negative interest rates

The BIS recognised the problem negative rates posed for banks two years ago.

An erosion in profitability feeds through to the banks’ capital bases…which in turn limits the very thing the central bankers crave…credit growth.

Yet, central bankers — those who are long on ego and extremely short on ability — still persist.

Seriously, how inept are these people?

The market worked out the bank profitability issue some time ago.

The EURO STOXX Banking index has fallen over 80% in value since its mid-2007 peak.

And, if we concentrate on the post-GFC years — when the ECB has been ‘doing whatever it takes’ to stimulate the Euro economy — the banking index has lost almost two thirds of its value.

iShares EURO STOXX Banks 30-15 UCITS ETF (DE) - 5-09-19

Source: FT

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In spite of all the evidence indicating the policy is a failure, the ECB, with Christine at the helm, is going to push rates much, much lower.

When Christine does what Christine does best (stuff up everything she touches) and drives the Euro zone into a deep depression, what will become of her?

Secretary of the United Nations seems like the next obvious career step.

Might as well move her into a position where she can squander what’s left of the world’s taxpayers money.

But for those of us in the real world, be warned.

Don’t you even think about spending more than $10,000 of your own (after tax) cash on purchasing any goods or services.

If you do, you’ll be reading future issues of The Rum Rebellion from the computer in the prison library.

Regards

Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

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Vern has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia. In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback. In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry. In 2013, he joined Port Phillip Publishing as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter. Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors. His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.


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