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The ‘Monarchs of money’ and the War on Savers

Quietly, without much public fuss or discussion, a new ruling class has risen in the richer nations.

These men and women are unelected and tend to shun the publicity hogged by the politicians with whom they co-exist.

They are the world’s central bankers. Every six weeks or so, they gather in Basel, Switzerland, for secret discussions and, to an extent at least, they act in concert.

The decisions that emerge from those meetings affect the entire world. And yet the broad public has a dim understanding, if any, of the job they do.

In fact, these individuals now wield at least as much influence over the lives of ordinary citizens as prime ministers and presidents.

Who are the world’s central bankers?

The tool they have used to change the world so profoundly is one they alone possess: creating money out of thin air.

There is an economic term for this: quantitative easing. More colloquially, it’s called printing money.

Since the great economic meltdown in 2008, these central bankers have probably saved the world’s economy from collapse, and dragged it into the unknown at the same time.

The amounts they have created are so vast as to be almost incomprehensible — trillions of dollars in pounds and euros, among other currencies.

At the end of 2012, the balance sheets of the world’s largest central banks, those of the G20 nations and the eurozone, including Sweden and Switzerland, totalled $17.4 trillion US, according to Bank of Canada calculations from publicly available data.

That is nearly a quarter of global GDP, and slightly more than double the $8.5 trillion these same institutions were holding at the end of 2007, before the financial crisis hit.

Stock markets have risen on this tide of cheap money. So has real estate. So, arguably, has everything else.

But there are two big concerns with what this new central banker elite has done.

One is that no one really understands the consequences of pumping such vast amounts of money into the world economy. It’s already distorted the prices of certain assets, and some fear hyperinflation or market crashes are inevitable (the subject of tomorrow’s column).

The other is that it’s caused a massive shift in wealth, from savers to borrowers, and is taking money out of the pockets of almost everyone approaching or at retirement age.

A war on savings

Probably the most painful of the consequences of quantitative easing has been borne by the elderly.

Most of that generation grew up believing that if you save and exercise prudence that you will earn at least a modest return on your hard-earned money to keep you comfortable in your old age, perhaps along with a pension.

But the money-printing orgy of the last five years looks to have shot that notion to smithereens.

Very deliberately, the central bankers have punished savers, pushing interest rates so low that any truly safe investment — and older people are always advised to play it safe — yields a negative return when inflation is factored in.

British pensioners Judy White and her husband Alan, at their home in Teddington, south of London: ‘I now have 50 per cent less.’ (CBC )

The policy has savaged pension and savings returns worldwide, but particularly in Britain, a nation of savers and pensioners.

There is more money in British pension funds than in the rest of Europe combined, and now that money is just sitting, “dead,” as some call it, not working for its owners.

Ask Judy White, a retiree in her late 60s who lives in Teddington, south of London, with her husband, Alan.


British pensioners Judy White and her husband Alan, at their home in Teddington, south of London: ‘I now have 50 per cent less.’ (CBC )

This year, the Bank of England shattered her retirement. Her pension benefit was effectively slashed by half.

“I don’t understand what quantitative easing is, except that it’s printing money,” she says. “But I do understand that I now have 50 per cent less.

“What they have done is take money from people who have been really careful all their lives.”

On the backs of the virtuous

Actually, by the Bank of England’s own reckoning, the £375 billion of quantitative easing it has carried out since 2008 has cost British savers and pensioners about £70 billion, roughly $100 billion. (At the same time, the richest 10 per cent of British households saw the value of their assets increase over the same period, the bank reported.)

That cost to the elderly is largely because pension payouts in the U.K. are pegged to the yields on government bonds, and quantitative easing has forced those yields down to almost nothing.

Speaking for the Bank of England, Paul Fisher acknowledges that the bank has created a paradox: It does want people to save and be prudent — just not right now.

“We try,” he says, “to get people to do things now to get out of this mess, which in the long run we prefer not to do.”

In other words, might we please have some more of the wild consumer spending and borrowing that helped get us all into this situation, at least for a while?

Ros Altmann, a governor at the London School of Economics: ‘A monumental social experiment.’ (CBC)


Ros Altmann, a governor at the London School of Economics: ‘A monumental social experiment.’ (CBC)

The plain fact, though, is that central bank- and government-imposed solutions to disasters caused by irresponsible, greedy, foolish behaviour are almost always carried out on the backs of the virtuous.

So it was with the bank rescues in 2008, and so it is with quantitative easing.

As Ros Altmann, a longtime pension manager and director of the London School of Economics, puts it, quantitative easing has amounted to a “monumental social experiment” — a large-scale transfer of wealth from older people to younger people.

“Anybody who was a saver and has got some accumulated savings will have had a reduction in their income,” she says.

While “anyone who had a big debt, particularly mortgage debts, would have had improvement in their income because their interest payments have gone down.”

As stupid as it might sound, older people everywhere would probably be better off if they’d abandoned prudence and borrowed more.

That is obviously not what the central bankers or our political leaders want. But that’s the situation they’ve created.

What’s the alternative?

This transfer from savers to borrowers has also been taking place here in the U.S. and in Canada, to varying degrees.

Some U.S. pension funds are in danger of default, at least partially because of these artificially low interest rates, and Canadian pension funds that are heavily invested in safer debt have been injured, too.

In an interview in his Ottawa office, Bank of Canada governor Mark Carney defends quantitative easing elsewhere, and his own low-interest rate policy, though he does acknowledge that it has been hard on pensioners and savers.

Like all central bankers, he argues the (impossible to prove) negative: There have been consequences, yes, but if we hadn’t done this, things would be far, far worse.

As for carrying out these solutions on the backs of the virtuous: “I don’t see a world where the virtuous are rewarded if we suffered a second Depression,” he says. “These are the stakes.”

Carney would prefer not to talk about the enormous power central bankers have gained since 2008, saying only: “We have a tremendous responsibility … because of a series of mistakes that were made in the private sector and the public sector.”

As Canada has performed better than most Western nations, Carney has not ordered any new money printing.

But he has kept interest rates down, and that has fed the real estate booms over the last few years in Vancouver, Toronto, Calgary and elsewhere.


See the surge in central bank holdings, the printing of new money, beginning in the spring of 2008 with the bank bailouts and the acquistion of long-term securities to keep interest rates down. (International Monetary Fund)

He scoffs at the suggestion that “the party” will end at some point. “I am not sure we are having a party right now,” he says. “It doesn’t feel like a party.”

And, in fact, he has repeatedly expressed concern at the huge debt levels Canadians are accruing, at least partly because of his low-rate policies.

But surely he understands the anger of an older person watching their savings being eroded, I ask him.

Carney smiles grimly. That question is clearly a sore point. He gets a lot of mail on the topic.

Canadians, he says, must understand that the alternative is massive unemployment and thousands of businesses going under, and “my experience with Canadians is that they tend to think about their neighbours and their children and more broadly … they care a little bit more than just about themselves.”

Asked whether central bankers are not in fact enabling irresponsible behaviour by speculators enamoured of cheap money, not to mention politicians who can’t curb their borrowing and spending, Carney merely remarks that voters in a democracy get the governments they choose.

via Neil Macdonald: The ‘monarchs of money’ and the war on savers – World – CBC News.

via Neil Macdonald: The ‘monarchs of money’ and the war on savers – World – CBC News.

Goldman Rejects Proposal That Firm Run for Elected Office

Goldman Sachs Group Inc. (GS), the investment bank nicknamed “Government Sachs” because of senior executives who have moved into public posts, won’t be entering politics itself.

A shareholder proposal that the New York-based company run for office instead of funding political campaigns was discarded, according to a letter last month from the Securities and Exchange Commission, which agreed the firm can exclude the measure from its annual meeting.

Harrington Investments Inc. President John Harrington submitted the proposal last year, saying the $6.39 million in 2012 political contributions from the firm’s employees risks doing more harm to its reputation. He said the bank should explore running for office, using a U.S. Supreme Court ruling that corporations have similar political rights to individuals.

“It would be less damaging to the integrity of our political system and our company, for our corporation to directly run for office as a person under federal or state law, than to continue in the current form of political participation,” Harrington wrote in the proposal.

Goldman Sachs said in a letter to the SEC that it “currently has no involvement, never has had any involvement, and has no plans to become involved in the business of running for political office.”

The bank also said that its political action committee is funded by voluntary employee contributions, not shareholder money. The Supreme Court’s 2010 Citizens United ruling gave corporations the same rights as individuals to spend money independently to support candidates.

‘Social Objectives’

Harrington Investments provides advisory services for investors “who want their investment portfolios to serve progressive environmental and social objectives while yielding positive long-term returns,” according to its website. The firm expressed its support for Occupy Wall Street protesters.

Two former Goldman Sachs chiefs, Henry Paulson and Robert Rubin, served as U.S. Treasury secretaries after leaving the firm, and another, Jon Corzine, represented New Jersey in the U.S. Senate and as governor. Mark Carney, the incoming Bank of England head, European Central Bank President Mario Draghi and Federal Reserve Bank of New York President William Dudley are among company alumni now setting monetary policy.

Harrington said he will continue to search for ways to bring up the issue of corporate political involvement, as well as the balance of power between shareholders and companies’ management teams and boards of directors.

“It’s too bad we didn’t get it on the ballot, it would have been a good discussion piece,” Harrington said today in a phone interview. “You begin to see a pattern of how much influence corporations have on our political balance, and now it’s so skewed that you figure, ‘Why don’t we have Goldman run for president and JPMorgan Chase run for vice president.’ And that way, they can run the system for real.”

via Goldman Rejects Proposal That Firm Run for Elected Office – Bloomberg.

via Goldman Rejects Proposal That Firm Run for Elected Office – Bloomberg.

Goldman Sachs Guy: Mark Carney, Song and Dance

images (13)

Mark Carney has been the Governor of the Bank of Canada since 2007.  During his time as Governor, the main chartered banks were injected with “liquidity” totaling about $114 billion because of the financial crisis of 2008.  The Prime Minister denied that this injection was a “bailout.”  The Canadian banks also borrowed from the US Federal Reserve discount window–one bank alone borrowed $10 billion.

Canadian banks have gradually been deregulated and now are getting bigger than ever before.  They can sell insurance, make investments and take deposits where previously they had been just boring depository banks.  They are also getting bigger through acquisitions of other banking institutions.

Mark Carney gets credit for keeping Canadian banks from failing during the crisis but it was mostly luck (“horsehoes”) or previous regulation that actually kept the financial system stable.  Carney and Finance Minister Flaherty frequently warn Canadians to get out of debt even though savings earn very little interest with our low interest rate policy and wages are stagnant or decreasing while prices continue to increase.  Debt levels in Canada reflect the conditions of our economy.  At the same time, the government has decided to impose austerity on the population by reducing expenditures across the board by 10% including loss of government jobs.

Here’s a little song for Mark Carney as he leaves Canada to become Governor of the Bank of England:

When I was a Lad” (Carney Style)

By Polemic – Macro Man 

After prompting from a reader and getting bored of guessing Italian election outcomes, we have adapted Messrs Gilbert and Sullivan’s “When I was a Lad” from “HMS Pinafore“. Instead of the Queen’s Navy, we think the B.o.E is more topical. 

“When I was a Lad” (Carney Style)

When I was a lad I served a term

As a junior trader at the Goldman firm.

I cleaned the books and soon wasn’t poor,

As I traded debt and made the profits soar.


He traded debt and made the profits soar.

I traded debt so carefully

That now I am the Governor of the B.o.E


He traded debt so carefully

That now he is the Governor of the B.o.E

As trading boy I made such a fee

That they gave me a post in the ministry

As Canadian minister with no recourse

I introduced a tax on income trusts at source.


He introduced a tax on income trusts at  source

I introduced the tax when at the ministry

So now I am the Governor of the B.o.E 


He introduced the tax when at the ministry

So now he is the Governor of the B.o.E

In raising tax I made such a name

That a central bank governor I soon became

I saw a crash, chose policies to suit

To prevent Canada becoming destitute.


To prevent Canada becoming destitute.

I passed so well through the G.F.C

That now I am the Governor of the B.o.E


He passed so well through the G.F.C.

That now he is the Governor of the B.o.E

Of central bank skills I acquired such a grip

That they took me into the partnership.

Bernanke, Merve and then Draghi

All showed me the way to play the great Q.E.


All showed him the way to play the great Q.E.

Balance Sheet Constraint won’t apply to me

Now that I am the Governor of the B.o.E


Balance Sheet Constraint won’t apply to he

Now that he is the Governor of the B.o.E.

I grew so known that I was sent

By a select committee into Parliament.

I always voted for the strong growth call,

I never thought of thinking of inflation at all.


He never thought of thinking of inflation at all.

I thought so little, they rewarded me

By making me the Governor of the B.o.E


He thought so little, they rewarded he

By making him the Governor of the B.o.E

Now bankers all, (don’t look at me Moody)

If you want to rise to the top of the tree,

If your soul isn’t bothered by a ratings fall

Be careful to be guided by this golden rule.


Be careful to be guided by this golden rule.

Preach growth, restraint yet huge Q.E.

And you all may be Governors of the B.o.E


Preach growth, restraint yet huge Q.E.

And you all may be Governors of the B.o.E

Mark Carney Will Be Goldman Sachs’s Guy in London

Mark Carney Will Be Goldman Sachs‘s Guy in London

Just how does Goldman Sachs influence the policies of government?  In 2011, Goldman economists suggested that additional asset purchases would help the Fed‘s easing policy.  The Fed did decide to buy $85 billion in assets each month beginning in 2012 when the unemployment rate in the US was 7.8%. This policy is supposed to reduce the unemployment rate  but the unemployment rate has gone up to 7.9% since the implementation.

Here is Goldman’s economist, Jan Hatzius:

“With short-term interest rates near zero and the economy still weak, we believe that the best way for Fed officials to ease policy significantly further would be to target a nominal GDP path such as the one shown in the chart on the right, indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time. The case would strengthen further if deflation risks reappeared clearly on the radar screen.”  (from Business Insider)

Mark Carney, Governor of the Bank of Canada, takes Goldman’s suggestions seriously, having been a Goldmanite himself.  So why would anyone be surprised that he will be taking Goldman’s economic ideas from Canada to the Bank of England?  Besides that, Carney now will have additional duties to perform such as supervising the other British banks.  It is so easy to spread Goldman’s economic ideas!

via Goldman Sachs: Information, Comments, Opinions and Facts: Mark Carney Will Be Goldman Sachs’s Guy in London.

Carney set for first taste of Bank of England job

The Treasury Committee is among the more powerful committees in Britain’s Parliament and it recently won the power to interview the incoming governor before he takes office. Although it doesn’t have the ability to block Mr. Carney’s appointment, the committee could make it difficult by issuing a negative report to the House of Commons and forcing a vote on whether he should be appointed.

No one is expecting that to happen, or the committee to give Mr. Carney a particularly rough ride on Thursday. “This is an opportunity for the new governor to get to know the committee,” member Andrew Love, a Labour MP, said in an interview. “It’s important for us to get to know him. And it’s an opportunity for the British public to find out more about how he sees the job as governor of the Bank of England.”

But it won’t all be easy going. Committee chairman Andrew Tyrie, a Conservative MP, has made it clear he has reservations about the recently expanded role of the governor, which now includes a supervisory role over London’s financial district along with setting monetary policy. Mr. Tyrie and other committee members have called for more oversight of the central bank, given its additional responsibilities. “We will want to hear what [Mr. Carney] has to say about making sure the bank is equal to the challenge of these new responsibilities,” Mr. Love said.

Mr. Carney will also be grilled about his decision to take the post for five years, instead of the eight requested by the British government. Mr. Carney told The Globe and Mail in November that he wanted the shorter term for family reasons and because it matches his potential tenure as head of the global watchdog known as the Financial Stability Board. Mr. Love said he and other committee members will need more of an explanation.

Merging the new responsibilities won’t be easy and it is hard to see how that can be done quickly, the MP added. “He certainly comes well qualified but there’s a major challenge and we will want to hear from him why he believes he can achieve that in five years.”

There will also be plenty of questions about Mr. Carney’s recent statements about whether central banks should scrap inflation targets during extraordinary times and move to a target that includes nominal gross domestic product, or GDP that has not been adjusted for inflation. Economists say targeting to nominal GDP growth would allow for higher inflation when the economy is slow, and lower inflation when the economy is strong. The idea is to try to smooth out the boom-and-bust cycles with an expanded approach, rather than fixating on a specific inflation number.

That kind of change would mark a major shift in policy for the Bank of England, which has followed a strict policy of targeting inflation at 2 per cent. Even the man who appointed Mr. Carney, George Osborne, the Chancellor of the Exchequer, has expressed little interest in the idea, saying inflation targeting has served Britain well. During a speech at the recent World Economic Forum in Davos, Switzerland, Mr. Carney also mused about using “unconventional measures” to kickstart an ailing economy.

Those comments have been given front-page treatment in Britain and will make up a large part of Thursday’s hearing. “We hope that he will lay out in some detail how he sees [nominal GDP targeting] developing and where he sees us moving,” Mr. Love said.

Ex Goldman Sucks Man gets top UK Banking Job

The  Chancellor George Osborne stuns the city with the appointment of Mark Carney the Canadian central banker who will replace Sir Mervyn King as the next Governor of the Bank of England.
Carney had previously had previously ruled himself out of the job but his old employees Goldi Sucks persuaded him to reconsider.
Mr Carney will serve a five year fixed term rather than the normal eight years.
A spokesperson for Goldi Sucks stated they were delighted with the appointment and expected Carney to relieve the British economy of all its wealth within the allotted period.
Goldi Sacks added they had offered Mr. Carney generious incentives to take on the job of Governor of the Bank of England.
They further added they expect to play a meaningful and significant role in advising the UK on its future bailout terms. The signal for this will be a ratings agency downgrade of the UK economy.
The immediate outlook for the UK is Greek style austerity for the general population but the good news is the 1% will get richer

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