Central Banks Lead the World to the Abyss

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

Economics textbooks say that the central bank is the lender of last resort. This means that the central bank (CB), if necessary, can help overcome the imbalances that have arisen in the economy with the help of loans: with the help of cash injections, save the economy from crisis, the bank from bankruptcy, the state from default.

For example, during the 2007-2009 financial crisis. The Federal Reserve System (US Central Bank) has issued a total of over $ 16 trillion in loans (almost interest-free) to the largest banks in Wall Street, the City of London and continental Europe. dollars. This is more than the annual GDP of the United States at the end of the last decade. In this case, the Federal Reserve did not save the American economy, but itself, or rather, its main shareholders.

The Fed also saves the American state by regularly providing it with monetary assistance to cover budget deficits (they reached $ 1 trillion a year) by purchasing Treasury securities. Central banks of other countries, which regularly buy US Treasury bonds, also act as "rescuers" of the American state. The largest foreign buyers are the Bank of Japan, the People's Bank of China, the Central Bank of Saudi Arabia, and others.

After the 2007-2009 crisis. the previous cash infusions into the economies of the so-called developed countries were no longer enough. Treating a “patient” with “horse doses” of cash infusions has been termed “quantitative mitigations”. In the United States, quantitative easing (QE) treatment began in 2008 and ended only in October 2014. As a result of the implementation of the three programs of the Constitutional Court, trillions of dollars were injected into the US economy: the assets of the Federal Reserve in 2007 were at the level of 0.8 trillion. dollars, and in October 2014 reached the level of 4.5 trillion. However, they did not have a life-giving effect: part of the money went immediately outside the United States to more promising markets (including Russia), the other part - to American financial markets. And the Federal Reserve cleared the balance sheets of American banks from ballast and "rubbish", freeing their hands for new speculation and provoking a new financial bubble. "Garbage" on the US balance sheet is more than enough: about 1, 8 trillion. dollars falls on mortgage securities, the quality of which is close to zero.

The European Central Bank (ECB) took over the COP relay. In March 2015, he launched his program, which provides for the buyback of securities in the amount of 80 billion euros per month. This year, the implementation of the program continues. The latest benchmark of the ECB for the buyback of securities (mid-June 2017) - 2.3 trillion. Euro.

The implementation of the KS program in Japan is in full swing: it provides for the purchase by the Bank of Japan for 80 trillion. yen annually. The Bank of England and the Swiss National Bank are also involved in quantitative easing. Following the decision to leave the UK from the EU last summer, the Bank of England extended the CC program and set a higher benchmark for its government bond portfolio (£ 435 billion).

As a result, some central banks have become giants that make all other companies and banks look like pygmies. Recently, Bloomberg news agency published an overview of the assets of the Central Bank of different countries of the world. Highlighted are the US Federal Reserve, the ECB, the Bank of England, the Bank of Japan and the Swiss National Bank. The aggregate assets of these five on the eve of the global financial crisis (2006) amounted to approximately 3.5 trillion. dollars, and at the end of the first quarter of 2017 this figure was already equal to 14.7 trillion. dollars. More than fourfold growth against the backdrop of a stagnating world economy. Central banks are growing like bubbles.

Here are the estimates of the Bloomberg agency showing how the value of the Central Bank's assets has changed over the ten-year period (2007 - 2016) in relation to the GDP of the corresponding country or group of countries (in percent): FRS - from 5, 8 to 24, 5; ECB - from 9.9 to 25.0; Bank of England - from 4, 4 to 22, 6; Bank of Japan - from 16, 3 to 59, 1. The growth is truly explosive. According to experts, the "explosion" will continue. Bloomberg reports that in the first quarter of 2017, the five assets grew by 1 trillion. dollars, and in May by another 0.5 trillion. dollars. If we extrapolate these figures for a year, it turns out that the increase in assets in 2017 will be equal to 3.5 trillion. Before that, the growth in 2016 was a record one (1.7 trillion dollars).

By the way, the Federal Reserve is no longer the largest central bank in the world, if measured by assets. First of all, it is worth looking at the People's Bank of China (PBOC), which did not accept any CC programs, but purposefully continues to increase its assets both in the form of international reserves and in the form of loans issued to Chinese banks.

Next fall, it will be three years since the US Federal Reserve stopped the KS program. And the ECB and some other central banks continue to build up their assets, catching up with the Fed. This is what the group of leaders looked like last year (trillion dollars): NBK - 5.0; FRS - 4, 5; Bank of Japan - 4, 4; ECB - 3, 9.

According to our estimates, in the spring of this year, the NBK retained its first place. But the ECB came in second place in May ($ 4, 60 trillion). The Fed and the Bank of Japan shared the third and fourth places - they each have $ 4.47 trillion. However, given that the Bank of Japan continues to implement the KS program, it can be assumed that it has already moved into third place, pushing the FRS to fourth. The next six Central Banks are the Bank of England, the National Bank of Switzerland, the central banks of Saudi Arabia, Brazil, India, and the Russian Federation. Their total assets are 3.6 trillion. USD. About the same account for the other 107 central banks, which were included in the estimates of the Bloomberg agency.

Not only have central banks been building up portfolios of government debt, for some time now they began to place corporate debt securities in these portfolios. The Bank of Japan and the National Bank of Switzerland have been doing this for a long time. Do not shy away from corporate bonds Bank of France, Bundesbank, other central banks of the eurozone. Last June, the ECB launched the Corporate Sector Purchase Program (CSPP) as part of its quantitative easing program. In May this year, the volume of corporate debt securities on the balance sheet of the ECB exceeded 100 billion euros. The ECB portfolio contains securities of such European companies as Deutsche Bahn, Telefonica, BMW, Daimler, ENI, Orange, Air Liquide, Engie, Iberdrola, Total, Enel, etc. In June of this year, the ECB's portfolio contained debt securities of about 200 European companies. The ECB has announced a plan to bring its portfolio of corporate debt securities to 675 billion euros.

Many corporate debt securities that fall into the portfolios of central banks have a purely symbolic interest rate, and some even negative returns. In mid-June, the ECB announced that the yield on 12% of the corporate bonds it bought was in the range from zero to -0.4%. That is, in fact, business is being subsidized, which contradicts the WTO rules. A new scheme for supporting large capital by the central bank is being built instead of the classical scheme for supporting business by lending (refinancing) commercial banks, which, in turn, lend to companies in different sectors of the economy.

However, these are not all innovations. Some central banks began to buy shares in companies. Here again the Bank of Japan is in the lead, which has shares in all leading Japanese corporations. In Europe, the Swiss National Bank is showing interest in shares. There are heated discussions in the ECB about whether it is worth expanding the corporate securities buying program to include shares in it; intuition tells me: they will turn it on, they will definitely turn it on.

So, the evolution of central banks is evident: from simple emission centers, they have turned into "lenders of last resort", and tomorrow they will become "owners of last resort", huge financial holdings. They will move from indirect management of the economy (through monetary policy) to direct ownership of all the assets of the real sector.

Quantitative easing is also a downward adjustment of the interest rate on the operations of these institutions, sometimes even below zero. The ECB has set a negative interest rate on deposits. In June, the ECB discussed its interest rate policy and decided to leave the deposit rate at minus 0.4%. For a number of active transactions, the rate remained at the level of 0%. The Federal Reserve has not reached the "minus life", but this option remains (if the economic situation in the country deteriorates sharply). In 2016, the seditious topic of the possible introduction of a negative interest rate was already discussed at the Federal Reserve Board.

Negative interest rates have also been set by some central banks, which have not officially announced KS programs. For example, the Central Bank of Sweden and Denmark. The Bank of England is also considering the option of bringing the key rate to zero or even minus values. In any case, in order to mitigate the negative consequences of Britain's exit from the EU, the Bank of England in August last year lowered its key rate from 0.5% to 0.25%.

By reducing their rates to zero or negative values, central banks influence all financial markets, driving them into negative territory. Minus on deposits of commercial banks, minus on loans, on government and corporate debt securities. Now government bonds of Japan, Germany, Austria, Switzerland, Denmark, Sweden, etc. are traded with negative yields. And all such securities were issued for 13 trillion. dollars, which is about a third of the global debt market. Negative interest rates are boomerang back to central banks in the form of negative securities. As a result, it could one day turn central banks into bankrupts of last resort.

Negative or zero interest rates ultimately wipe out any kind of profit. And this contradicts the ideology of the social system that has existed on the planet for several centuries and is called capitalism. About the onset of such a moment, Karl Marx wrote in "Capital" a century and a half ago, speaking about the law-tendency of a decrease in the rate of profit. So it dropped to zero, marking the end of the capitalist era. It's hard to say what will happen next. Marx talked about socialism, the main principle of which is social equality, but the “owners of money” (shareholders of central banks or other beneficiaries who informally control the Central Bank) are unlikely to want even the abstract equality that Marx wrote about. Their plans include a transition from the current model of capitalism to a system that can be called a new slavery. In the new system, money will disappear or its role will be minimal; it will only be an instrument of “accounting and control”. In such a system, the "owners of money" will become the new slave owners, the rest - slaves. Banks will remain, but they will have new functions. By the way, V. Lenin said more than once that the Bolsheviks should transform banks from capitalist enterprises into organizations of "accounting and control." Central banks may also come in handy in this new system. They will be transformed into the supreme organs of centralized slave administration. In the new society, the word "socialism" can also be revived, which will mean the equality of all the inhabitants of a large barrack (or concentration camp). This role of banks in the "new wonderful world" was hinted at two centuries ago by one of the founding fathers of "utopian socialism" Saint-Simon, whom for some reason I would like to call the founding father of the genre of dystopia, as well as the ideology of "banking socialism".