The Public Servants Who Govern the Markets in the So-Called Capitalist West

The Public Servants Who Govern the Markets in the So-Called Capitalist West, by Ben Hunt in 2013.

The Narrative of Central Banker Omnipotence… [is] simple: central bank policy WILL determine market outcomes. There is no political or fundamental economic issue impacting markets that cannot be addressed by central banks.

Not only are central banks the ultimate back-stop for market stability (although that is an entirely separate Narrative), but also they are the immediate arbiters of market outcomes. Whether the market goes up or down depends on whether central bank policy is positive or negative for markets. The Narrative of Central Banker Omnipotence does NOT imply that the market will always go up or that central bank policy will always support the market. It connotes that whatever the central bank policy might be, it will drive a market outcome; whatever the market outcome, it was driven by a central bank policy.

Like all effective Narratives it has a great deal of “truthiness” … it rings true to our intellect even as it appeals to our emotions. How comforting to believe that there is a reason why markets go up and go down, and that this reason is clearly identifiable and attributable to the decisions of a few Wise Men and Women, as opposed to the much scarier notion that the world (and markets) are adrift on a sea of chaotic events and hidden currents. And like all effective Narratives it serves the interests of the world’s most powerful political and economic entities … not that there’s anything wrong with that. …

The stronger the Narrative of Central Banker Omnipotence, the more likely it is that the price of gold goes down. The weaker the Narrative – the less established the Common Knowledge that central bank policy determines market outcomes – the more likely it is that the price of gold will go up.

As astute observers have noted since the GFC: there are no markets anymore, only interventions.

Seriously, there is so much central bank influence that most commodity and financial markets are no longer doing their vital job of price discovery. Thus allocation of capital is becoming less efficient, and our society is becoming poorer than it would have been otherwise. All this as central banks prop up an increasingly autocratic system, to protect the wealth of the politically powerful current asset holders. It cannot last.