Central Banks are clueless – Confirmed by the Masters of Banking

Bank for International Settlements, the Institution that sits at the top.

Established on 17 May 1930, the Bank for International Settlements (BIS) is the world’s oldest international financial organisation.

The BIS has 60 member central banks, representing countries from around the world that together make up about 95% of world GDP.

In their report recently released, a minefield of wrong, a brief outline covered in the Press Release by Claudio Borio, who has a nice analogy of an old favorite on the practices of sovereign Central Banks.

“In The Adventures of Tom Sawyer, Mark Twain tells us that the essence of good management is to have your friends paint the fence and pay you for the privilege. By that yardstick, some sovereigns have surpassed the master.”

He goes on to say that “In the background, the search for yield has continued and so has the markets’ dependence on central bank monetary accommodation.

The latest market jitters in the wake of a strong US payroll figure, hinting at a policy rate hike sooner rather than later, is but the latest example.

Volatility has been returning to historical averages, pointing to less aggressive risk-taking. But markets cannot remain liquid when the exit door has been narrowing for so long. There should be no illusion about this.”

Hyun Shin describes matters in relation to oil.

“The continued high rates of production and rapid accumulation of oil inventories may reflect in part the cash flow needs of producers to service their debt.

In particular, we show that hedging by producers displays a tell-tale downward-sloping supply response where declines in price are associated with increased sales of oil in the futures market.

The extent to which selling into a falling market sets off an amplifying price response depends on market liquidity and the capacity of dealers to absorb the sales.

A part of the rapid oil price decline in the recent episode could be attributed to the decreased capacity of swap dealers to absorb the sales. With this observation, we come full circle to the theme of the previous piece on market liquidity.”

I feel out of sorts, would have thought that ‘Lost in Space’ and the Class M-3 Model B9, General Utility Non-Theorizing Environmental Control Robot, which had no given name would be shouting WARNING – WARNING.

‎http://www.youtube.com/watch?v=RG0ochx16Dg

http://www.bis.org/publ/qtrpdf/r_qt1503_ontherecord.htm

Well the storyline in the report gets a lot more interesting, and the full report can be downloaded on PDF on the link below.

Spoiler alert though, shows that Central Banks ARE clueless.

Extracts:-

“Given where we are, normalisation is bound to be bumpy. Risk-taking in financial markets has gone on for too long. And the illusion that markets will remain liquid under stress has been too pervasive. ”

“… the likelihood of turbulence will increase further if current extraordinary conditions are spun out. The more one stretches an elastic band, the more violently it snaps back.”

“Restoring more normal conditions will also be essential for facing the next recession, which will no doubt materialize at some point.”

“Of what use is a gun with no bullets left?”

“Therefore, while having regard for country-specific conditions, monetary policy normalization should be pursued with a firm and steady hand.”

https://www.bis.org/publ/arpdf/ar2015_ec.pdf

Does a dinosaur really feel his tail being kicked, five minutes after you do the deed?

Always thought that if I was a carnivore, then I would get fat on feeding off their tail.

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