Central Bankers Talk Doom, Markets Surge

You’ve got to hand it central bankers for deftly using scare tactics to drive up the markets

This from a Bloomberg article entitled Central Banks Warn Greek-Led Euro Stress Threatens World

Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.

Monetary policy makers from the U.K. to Japan and Canada sounded the alert about potential fallout from the single currency bloc’s troubles. They spoke as Group of 20 leaders prepare to meet in Mexico next week amid the weakest international economy since the 2009 recession.

A victory by Syriza, the party that promises to renege on Greece’s end of the bailout deal, could speed the nation’s exit from the euro. Absent a quick fix from divided European governments, central bankers may have to engage in fresh crisis- fighting of their own to ensure markets operate and their economies grow if the election jolts investors. Spain’s 10-year bond yield vaulted to 7 percent yesterday in a fresh sign of the stress that has plagued the region for two years.

The crisis has created a “large black cloud of uncertainty hanging over not only the euro area, but our economy too, and indeed the world economy,” Bank of England Governor Mervyn King said in London late yesterday.

‘Major Shock’

Canada faces a “major shock,” and global financial conditions could deteriorate significantly if Europe’s crisis worsens, the country’s central bank said yesterday. Bank of Japan (8301)Governor Masaaki Shirakawa said June 13 that the euro area poses the biggest challenge to the world’s No. 3 economy. The BOJ today kept monetary policy unchanged, while saying it will be giving “particular” attention to global market developments.

So when has DOOM become POSITIVE for markets? Well that’s when markets have been PROMISED to be defended with a tsunami of STEROIDS

Here are some examples:

Bank of England proposes £140 billion rescue plan

From the Telegraph

George Osborne unveiled a £140 billion emergency scheme to try to avoid a second credit crunch caused by the ongoing chaos in the eurozone.

The Bank of England is to offer money to high-street banks to kick-start mortgage and small business lending to prevent loans being rationed for many families and entrepreneurs, the Chancellor announced.

It comes after sharp rises in the costs of mortgages and other loans in recent months as banks struggle to raise money in the midst of the single currency crisis.

Bloomberg on last night’s positive reception of US markets on the alleged doomsday

Expectations for global policy action grew as central banks intensified warnings that Europe’s failure to tame its crisis threatens the economy. European Central Bank policy makers have overcome a key concern about taking the benchmark rate below 1 percent, two euro-area central bank officials said. The June 17 vote will turn on whether Greeks accept open-ended austerity to stay in the euro or reject the conditions of a bailout and risk becoming the first to exit the 17-member currency.

Fed Action

Stocks also rose on speculation the Federal Reserve may join central banks in taking steps to boost growth. Data today showed that industrial production unexpectedly fell and consumer confidence slid, adding to evidence of U.S. economic weakness. U.S. policy makers meet June 19-20.

Of course, flooding the world with money would not be sufficient, central bankers would need to ensure an easing of regulatory conditions to make the credit environment conducive, e.g. lighten up on collateral requirements

From Marketwatch.com

International regulators are on the verge of easing new banking rules that are meant to help the safety of the financial system, the Wall Street Journal reports, citing unnamed sources. Some of the regulators apparently worry that forging ahead with the new requirements could actually make the European financial meltdown worse, the newspaper noted. So, the new plan is to make it easier for the industry to comply with requirement that lenders keep on hand enough liquid assets to weather market plunges or other disasters.

To preserve the current system, central bankers should be expected to INTENSIFY the use of steroids—which do not really help anyway and actually worsen it—in order to postpone what is truly inevitable.

Today’s markets have increasingly been anchored or hostaged on expectations of huge infusions of steroids. This implies that FAILURE to please or satisfy such expectations would lead to tremendous or outsized volatilities.

Nonetheless central bankers have, in reality, been using the crisis to expand political control over their constituents

As the great libertarian H.L. Mencken once said,

The urge to save humanity is almost always a false-face for the urge to rule it.

Be very careful out there.