You Want Something You Can Take to the Bank?

The End is in the Beginning…

Whoa! The Dow rose almost 500 points yesterday. Whoopee! Hallelujah!

It was like the Second Coming on Wall Street. As if He walked across the East River…and announced it Himself:

“The fix is in.”

But it was not the sacred that spoke yesterday. It was the profane. The world’s central banks, to be precise. They got together. More like a meeting of mobsters than a gathering of the gods. They made it clear.

You want money? You want cash? You want something you can take to the bank? Well, you’ve got it!

“A move by the world’s central banks to lower the cost of borrowing exhilarated investors Wednesday,” the Associated Press reports, “sending the Dow Jones industrial average soaring 490 points and easing fears of a global credit crisis similar to the one that followed the 2008 collapse of Lehman Brothers.”

It was the Dow’s biggest gain since March 2009.

Large US banks were among the top performers, jumping as much as 7 percent. Markets in Europe surged, too, with Germany’s DAX index climbing 5 percent.

Wednesday’s action by the banks of Europe, the US, Britain, Canada, Japan and Switzerland represented an extraordinary coordinated effort.

But amid the market’s excitement, many doubts loomed. Some analysts cautioned that the banks’ move did nothing to provide a permanent fix to the problems facing heavily indebted European nations such as Italy and Greece. It only buys time for political leaders.

“It is a short-term solution,” said Jack Ablin, chief investment officer at Harris Private Bank. “The bottom line on any central bank action is that it papers over the problems, buys time and in some respects takes pressure from politicians… If nothing’s done in a week, this market gain will disappear.”

Banks stocks soared as fears about an imminent disaster in the European financial system ebbed.

But wait.

What has really happened? The central bankers have given out the word that they’ll print up as much money as necessary. So what’s new? Haven’t they been doing that all along? What is lending at zero interest rate? What is buying the government’s debt? What is taking the toxic bonds off the banks and brokerage houses?

What is really new? Not much.

You remember our advice, dear reader? Sell stocks on rallies. Well…what are you waiting for?

And if we were speculators we’d be selling stocks…even stocks we didn’t own. Because we have here an opportunity. The market is rising on hope, not on reality. And today, it might rise a bit more…

..until it finally realizes that there is no really good reason to be so bullish.

Stocks are bits of businesses. And businesses do not make more money just because the central banks print money. If this were not so, a few years ago, Zimbabwe’s companies would have been the most profitable on earth. Under the leadership of Gideon Gono, the central bank of Zimbabwe was printing up trillion-dollar notes and handing them out all over town. Trouble was, you couldn’t even buy a cup of coffee with them. In fact, you couldn’t buy a cup of coffee anyway…the whole economy was in such disarray nobody could get any coffee. Or anything else.

That was at the end. At the beginning money-printing works miracles.

But businesses do not operate in the realm of the mysterious or the sacred. They are remarkably down-to-earth undertakings. They’re real enterprises with real revenues and real expenses. They make money by selling goods and services. And, taken all together, they only make as much money as the economy itself allows. In other words, it’s not possible for all the businesses to do better than the economy that supports them.

So, now we can ask you a question: will the economies of the world’s countries do better, now that the central banks have announced they will print more money?

Or will they do worse?

It’s hard to say. But by our reckoning, the world is in the grip of a major correction. Among the things the correction is likely to correct is the money system…in which central banks have the power to create “money” out of thin air.

Would the correction correct something that didn’t need correction? If central bankers refused to print money there would be no need to correct them, would there? So this latest announcement just confirms what we thought all along.

Printing money is easier than raising taxes. It is also easier than borrowing…especially when lenders get wary. All that stands in the way is the integrity of the central bankers themselves.

Looks like that just gave way…

Is the Great Correction still underway? Yes it is! The Wall Street Journal reports:

Consumers continued to cut debt levels in the third quarter, largely as they pulled back from the housing market again, the Federal Reserve Bank of New York reported Monday.

For the most recent quarter, overall debt loads for households fell 0.6% from the prior quarter, for a drop of around $60 billion to $11.66 trillion. The bank said mortgage balances recorded on consumer credit reports fell by 1.3%, or $114 billion, while home equity lines increase by 2.3%. The retreat in mortgage borrowings was the primary driver of the overall drop in consumer borrowing.

*** Hey, wait. If the central bankers are printing money, why should consumers continue to cut back?

Ah…glad you asked. The central banks are bailing out speculators, bankers, and the feds…not households. The money only reluctantly gets to the consumer level…or not at all.

Instead, the rich get richer…courtesy of a corrupt money system. They get bailed out of their mistakes…and handed a lot of money they don’t deserve.

And the poor? Do they get richer simply because the central banks coddle bondholders? Do the bondholders set up factories and provide middle-skill jobs? Do the speculators invent new industries? Do the insiders set up small businesses and build companies that create new wealth?

Don’t make us laugh, dear reader.

*** No…the system just becomes more corrupt…and more zombified.


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

Latest posts by Bill Bonner (see all)

Leave a Reply

1 Comment on "You Want Something You Can Take to the Bank?"

Notify of
Sort by:   newest | oldest | most voted
Jeremy Britton DipFA SA(Fin) AAHA HH Dip(PH)
Jeremy Britton DipFA SA(Fin) AAHA HH Dip(PH)

Ouch! Bill, you take a red hot knife to the throats of bankers and speculators and then twist it. I’m not saying it was undeserved; it just looks painful! How long does it take for wisdom to become common sense?

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to