{"id":10319,"date":"2015-07-23T05:45:17","date_gmt":"2015-07-23T10:45:17","guid":{"rendered":"http:\/\/olduvai.ca\/?p=10319"},"modified":"2015-07-23T05:45:17","modified_gmt":"2015-07-23T10:45:17","slug":"central-banks-have-shot-their-wad-why-the-casino-is-in-for-a-rude-awakening-part-i","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=10319","title":{"rendered":"Central Banks Have Shot Their Wad\u2014\u2014-Why The Casino Is In For A Rude Awakening, Part I"},"content":{"rendered":"

Central Banks Have Shot Their Wad\u2014\u2014-Why The Casino Is In For A Rude Awakening, Part I<\/a><\/h3>\n

There has been a lot of chatter\u00a0in recent days about the plunge in commodity prices\u2014\u2013capped off by\u00a0this week\u2019s\u00a0slide of the Bloomberg commodity index to levels not seen since 2002. That epochal development is captured in the chart below, but most of the media gumming about the rapidly accelerating\u00a0\u201ccommodity crunch\u201d misses the essential point.<\/p>\n

To wit, the central banks of the world have shot their wad<\/strong><\/em>. Accordingly, the 12-year round trip depicted in the chart\u00a0is not about the end of some\u00a0nebulous \u201ccommodity supercycle\u201d that arrived from out of the blue after the turn of the century. Nor, most certainly, is it evidence of the Keynesians\u2019\u00a0purported global shortage of \u201caggregate demand\u201d that can be remedied by an even more extended spree of central bank monetary stimulus.<\/p>\n

No,\u00a0the Bloomberg Commodity index is a slow motion screen shot depicting the\u00a0massive intrusion of worldwide central bankers into the global economic and financial system. Their unprecedented spree of money printing took\u00a0the aggregate global central bank balance sheet from $3 trillion to $22 trillion over the last 15 years.<\/p>\n

The consequence was a deep and systematic falsification of financial prices on a planet-wide scale. This unprecedented monetary shock\u00a0generated\u00a0a double-pumped economic\u00a0boom\u2014\u2013first in the form of an\u00a0artificial debt-fueled\u00a0consumption spree\u00a0and then a sequel of massive malinvestment.<\/p>\n

Now comes the deflationary aftermath.\u00a0Soon there will follow a\u00a0plunge in corporate profits and\u00a0collapsing prices among the\u00a0vastly inflated risk asset classes\u00a0which surfed on these phony\u00a0booms.<\/p>\n

So it is worth recounting how we got here.\u00a0In\u00a0the first phase,\u00a0central banks engineered\u00a0a massive wave of\u00a0household borrowing and\u00a0consumption\/housing spending\u00a0in the DM economies which,\u00a0in turn, ignited an export manufacturing boom in China and among\u00a0its\u00a0caravan of EM suppliers. This China\/EM export boom eventually\u00a0over-taxed the world\u2019s existing capacity to supply the raw materials required by a booming\u00a0industrial economy\u2014hydrocarbons, iron ore, met coal, aluminum, copper, nickel etc.<\/p>\n

 <\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Central Banks Have Shot Their Wad\u2014\u2014-Why The Casino Is In For A Rude Awakening, Part I There has been a lot of chatter\u00a0in recent days about the plunge in commodity prices\u2014\u2013capped off by\u00a0this week\u2019s\u00a0slide of the Bloomberg commodity index to levels not seen since 2002. That epochal development is captured in the chart below, but […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[4540,6122,124,130,5979,2120,202,467,7485],"class_list":["post-10319","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bloomberg-commodity-index","tag-casino","tag-central-banks","tag-china","tag-contracorner","tag-david-stockman","tag-deflation","tag-keynesian-economics","tag-world-trade"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10319","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10319"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10319\/revisions"}],"predecessor-version":[{"id":10320,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10319\/revisions\/10320"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10319"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10319"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10319"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}