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posted on 08 November 2016

The Terrifying Endgame Of Global Central Banking

by Shah Gilani, Money Morning

Special Report from Money Morning

The age of socialist monetarism is upon us.

The unthinkable is happening; in fact, the final chapter is being written as you read this.

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Socialist monetarism: (sōSHələst mänidərizəm) the takeover of the free world by an oligarchy of bankers.

Governments around the (presumably) free world have ceded fiscal and economic control of their countries to central bankers, who, drunk with power, are methodically replacing free-market capitalism with a new order of socialist monetarism.

f you don't know what I'm talking about, you're not alone. See, you're not supposed to know.

The fact is, we're supposed to think that central banks are our economic saviors.

But what they're actually doing, right before our very eyes, is radically changing the world we know.

And not at all for the better…

A Disaster Nearly Four Decades in the Making

It's an undisputed fact of history that the U.S. Congress granted the Federal Reserve System, America's privately owned central bank, its so-called "dual mandate" in November 1977.

Besides the Fed maintaining "stable prices and moderate long-term interest rates," Congress mandated the Fed should also be responsible for "the goals of maximum employment".

At the time, Congress was unable to control "stagflation" and rising unemployment. So, being Congress, they punted; they abdicated their fiscal responsibilities and obligations to steward the economy and create jobs.

From then on, politicians of all stripes have been able to blame the Fed for poor economic conditions and rising unemployment, while pandering for votes to get elected to do something about the economy and create jobs.

It's a neat political jiu-jitsu trick.

And it was followed by governments all over the world.

Fast forward to today, when the do-nothing U.S. Congress is publicly leaning on the Fed to bail the country out of the Great Recession (that Fed policies caused in the first place) while they bicker among themselves - taking no fiscal responsibility or action.

You can imagine that sounds pretty appealing to the global political class, so naturally, the European Union is doing the same thing,

You can imagine that sounds pretty appealing to the global political class, so naturally, the European Union is doing the same thing, punting each country's fiscal responsibilities to the European Central Bank (ECB).

And Japan's punting… and Switzerland… and the United Kingdom… and so on… and so on…. and so on… all down the same dangerous path.

Their multitrillion-dollar quantitative easing, a bond-buying, money-printing spree that the world's central banks initiated in order to get their battered economies going again, simply didn't work.

The capital-destroying, pernicious low-, zero-, and negative-interest-rate policies - LIRP, ZIRP, and NIRP, the Three Stooges of monetary policy - didn't work so well, either.

Oh, sure, these actions were like a cocktail of steroids and rocket fuel for bond and equity markets (and economic inequality), but real growth and employment gains… they're nowhere.

And now things are about to get really crazy - in some cases, they already are.

These central bankers haven't looked at their failed experiments self-critically - they don't have the guts or brains to admit they've screwed up.

Markets are so dependent on these policies for gains now that it's beginning to become obvious to all but the latest, dumbest money. Central bankers can see that, too.

No, they're faced with what they see as an insurmountable problem, and they're going whole orders of magnitude crazier…

Central Bankers Are Right There in the Markets with You

Rather than admit defeat and wind up their policies, central bankers are doing the unthinkable - and they're planning on doing a lot more of it.

They're buying government bonds and mortgage bonds. Some central banks are going so far as to buy corporates, too.

But worse, some central banks are increasingly buying stocks.

Not for the same reasons as you or me, not to make a calculated risk of capital in the reasonable expectation of return. No way.

They're doing it for all sorts of half-baked, Econ 101 textbook reasons, to stimulate demand, whet risk appetites, and somehow get the growth that's eluded them so far.

In other words, we're investing for retirement, or to get the things that they want, or to provide for our families.

They are buying stocks in a doomed effort to move a massive, million-ton macroeconomic needle two spaces to the left.

Do those goals sound even remotely simpatico?

Their policies screwed up the stock market, and now they're diving in feet first.

Yep, they're buying a lot of the same stocks you probably own, which are big contributors to benchmark indexes around the world, the same stocks that have been rising and making us supposedly feel more wealthy.

The Swiss National Bank, for example, as of the first quarter of 2016, has accumulated over $120 billion worth of stock, including: $1.489 billion invested in Apple (Nasdaq: AAPL), $1.2 billion in Alphabet (Nasdaq: GOOGL) (parent of Google), $1 billion in Microsoft (Nasdaq: MSFT), $803 million in Amazon (Nasdaq: AMZN), $741.5 million in Facebook (Nasdaq: FB), $1.17 billion in Exxon Mobil (NYSE: XOM), $1.032 billion in Johnson & Johnson (NYSE: JNJ), $862 million in AT&T (NYSE: T), $823 million in General Electric (NYSE: GE), $739 million in Verizon (NYSE: VZ), $718 million in Proctor & Gamble (NYSE: PG), $644 million in Pfizer (NYSE: PFE), $582 million in Coca Cola (NYSE: KO), and $557 million in Chevron (NYSE: CVX).

If you're wondering about market rallies, it's important to know these big names weigh heavily - and I mean heavily - on all major U.S. benchmark indexes.

All of them are components of the S&P 500, and those big tech stocks dominate the Nasdaq Composite. What's more, 11 of the stocks I mentioned there are included in the Dow Jones Industrial Average of 30 stocks.

According to the Swiss National Bank's (SNB) web site, it's allocating a full 20% of all its foreign currency reserves to stock investing.

They're not the only ones.

The Bank of Japan, as reported by Bloomberg, "ranks as a top 10 holder in more than 200 of the Nikkei gauge's 225 companies."

The ECB is considering buying stocks, and the U.S. Federal Reserve hasn't ruled it out.

In Fed Chair Janet Yellen's recent testimony before the House Financial Services Committee, when South Carolina Republican Mick Mulvaney asked,

"Is the United States Federal Reserve looking at the possibility of adding the purchase of equities to its tool box as it looks at monetary policy?"

Yellen responded,

"Well, the Federal Reserve is not permitted to purchase equities. We can only purchase U.S. treasuries and agency securities. I did mention in a speech in Jackson Hole, though, where I discussed longer term issues and difficulties we could have in providing adequate monetary policy. Accommodation may be somewhere in the future, down the line that this is the kind of thing that Congress might consider, but if you were to do so, it's not something that the Federal Reserve is asking for."

I can easily see a time in the near future when the Fed could come "riding in to the rescue" if only that pesky Congress would let it start buying stocks.

The idea of these banks wading into equity markets, even deeper than they already are, in some cases, is a terrible one. The market might not ever recover.

Neither would the economy.

Economist Ed Yardeni recently wrote on his website,

"In the long run, it's hard to imagine that having the central monetary planners buy corporate bonds and stocks with the money they print can end well. In effect, the central banks are turning into the world's biggest hedge funds, financed by their own internal primary (money-printing) dealers and backstopped by the government - which can always borrow more from the central bank or force taxpayers to make good on this Ponzi scheme…"

What's more, there are not unreasonable suggestions out there that central banks in the United States and elsewhere may already be interfering in markets to such an extent as to be illegal.

For instance, Forbes contributor Adam Sarhan wondered,

"Over the past seven years, we have seen unprecedented action from global central banks all aimed at keeping stock prices up. It's normal to see global central banks adjust monetary policy, up or down, based on economic conditions. But it is not normal to see global central banks print gobs of money every day to stimulate markets and it is definitely not normal to see them buy stocks outright. I'm not a lawyer but it raises the question: Is it even legal? I'm sure the BOJ is not alone in this questionable activity. The U.S. Fed refuses to be audited. One is compelled to ask: Why?"

The endgame to these monstrous monetary programs is obvious to folks like me who can see the handwriting on the wall. I'm not alone.

Marc Faber, editor of the "Gloom, Boom & Doom Report" said,

"The central banks aren't interested in what works, they're interested in their own prestige. And they are so deep into it already and it didn't work. They will increase the medicine, eventually, they'll buy all the government bonds; they'll buy all the corporate bonds, all the shares outstanding. Afterwards the housing market goes down, they'll buy all the homes and then the government will own everything."

Faber said:

"I could see a situation where at the end the government owns all the corporations and all the government bonds and then we are back into socialism, into a planning economy."

It's happening.

Governments have ceded their power to the central bankers, who essentially own them and are pushing their new order socialist monetarism control system on the formerly free world.

You've been warned.

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