Taper Poker Bluff Called: Global Central Banks Back on an Easing Spree

The so-called “tapering” has all been a poker bluff.  And that bluff has been called as global central banks take on an increasingly dovish stance.

From Bloomberg:

The era of easy money is shaping up to keep going into 2014.

The Bank of Canada’s decision yesterday to drop language about the need for future interest-rate increases unites it with other central banks reinforcing rather than retracting loose monetary policy. The Federal Reserve delayed a pullback in its monthly asset purchases, while emerging markets from Hungary to Chile cut borrowing costs in the past two months

“We are at the cusp of another round of global monetary easing,” said Joachim Fels, co-chief global economist at Morgan Stanley in London.

Policy makers are reacting to another cooling of global growth, led this time by weakening in developing nations while inflation and job growth remain stagnant in much of the industrial world. The risk is that continued stimulus will inflate asset bubbles central bankers will have to deal with later. Already, talk of unsustainable home-price increases is spreading from Germany to New Zealand, while the MSCI World Index of developed-world stock markets is near its highest level since 2007.

Easy money has hardly produced the desired effects, yet the stubborn insistence by central bankers to do the same thing over and over yet expecting different results. 

The economic payoff has been limited. The International Monetary Fund this month lopped its forecast for global economic growth to 2.9 percent in 2013 and 3.6 percent in 2014, from July’s projected rates of 3.1 percent this year and 3.8 percent next year. It also sees inflation across rich countries already short of the 2 percent rate favored by most central banks.

Central bankers are on guard to keep low inflation from turning into deflation, a broad-based decline in prices that leads households to hold off purchases and companies to postpone investment and hiring.

Promoting debt has gone global.

Some central banks in emerging markets are already acting. Chile unexpectedly lowered its benchmark rate by a quarter point to 4.75 percent on Oct. 17, pointing to weaker growth, inflation and the global outlook. Israel on Sept. 23 surprised analysts when it cut its key rate a quarter point to 1 percent, the lowest in almost four years.

“With the dollar much weaker in recent days and weeks, you’ll see central banks that were reluctant to ease start to do that now,” said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group Ltd. in New York. “They can be less worried about capital flight if the Fed isn’t tightening policy, and the strength in their currencies is probably imparting some disinflation into their economies, giving them a window to cut rates.”

Hungary, Latvia, Romania, Serbia, Sri Lanka, Egypt and Mexico have also eased since the start of September although Indonesia, Pakistan, Uganda and India tightened with the latter softening the blow by relaxing liquidity curbs in the banking system at the same time.

Yet cheap credit equals asset bubbles

The cheap cash may come at a price that policy makers will have to pay later if it inflates asset bubbles. Germany’s Bundesbank said this week that apartments in the country’s largest cities may be overvalued by as much as 20 percent. In the U.K., BOE officials are rebutting commentary about a housing bubble as prices in London jumped 10.2 percent in October from the prior month.

Swedish and Norwegian property markets are also proving a concern to their central bankers, and policy makers in New Zealand and Singapore have already sought to cool demand. Meantime, U.S. stocks are heading toward the best year in a decade with about $4 trillion added to U.S. share values this year.

As I have repeatedly been pointing out here, easy money regime represents a transfer of resources from the real economy to the cronies of the banking-finance and to the political class and cronies of the welfare-warfare state and the bureaucracy. Such has been enabled, intermediated and facilitated by the global central banks via asset bubbles.

Also such asset bubbles have been financed by a massive build up of debt.

Global debt has been estimated at $223 trillion last May 2013—313% (!!!) global gdp…and growing fast.

According to the Wall Street real time economics blog

In a comprehensive report on global indebtedness, economists at ING found that debt in developed economies amounted to $157 trillion, or 376% of GDP. Emerging-market debt totaled $66.3 trillion at the end of last year, or 224% of GDP.

The $223.3 trillion in total global debt includes public-sector debt of $55.7 trillion, financial-sector debt of $75.3 trillion and household or corporate debt of $92.3 trillion. (The figures exclude China’s shadow finance and off-balance-sheet financing.)

Again easy money promotes interests of political agents. Credit easing policies has produced an explosion of central bank assets as government debts skyrockets.

 This comes as global GDP shrinks.

I pointed out last week of the growing imbalance between the growth of debt and GDP  in the US. I wrote “since 2008, the US acquired $7 of debt for every $1 of statistical economic growth”

The other way to look at this is to ask; how will $1 of growth pay for $7 of debt?   

Dr. Marc Faber  at the Daily Reckoning writes

Moreover, the Fed wants to stimulate credit growth with its artificially low interest rates. But again, credit growth has largely lost its impact on the real economy. The multiplier on GDP of an additional dollar of debt is now negligible.

So Central Banks are caught in a ‘loop the loop’ or ‘cul de sac’ trap. To maintain the illusion of sustainability credit easing policies must exist in perpetuity. However, the easy money environment further inflates systemic debt thus intensifying systemic fragility or vulnerability to a crisis. And so the feedback loop.

Yet at the end of the day economist Herbert Stein’s law “If something cannot go on forever, it will stop” will prevail. 

And the great Austrian economist Ludwig von Mises warned (bold mine) 

The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system.

Video: David Stockman: From “Bubble” Ben Bernanke to “Calamity” Janet Yellen

Strident criticism of Janet Yellen, the likely replacement of Fed Chairman Ben Bernanke, by author, former Congressman and Director of the Office of the Management Bureau David Stockman in a Bloomberg interview (zero hedge)

She has no clue how to wean Wall Street from this pathetic addiction to this massive stimulus, easy money that’s been going on for this entire century…

She spent her whole life as a monetary bureaucrat in the Fed system, has no clue what honest capitalism what genuine free markets are about. Believes that the entire system has to be run by a monetary politburo turning over the dials…short-term interest rate, yield curve and the entire financial system.

She is part of the groupthink. She is part of the Keynesian consensus that 12 people running $16 trillion economy. They are delusional. The market is simply trading the word clouds in this daily injections that comes from the out of control central bank

In Defiance of the Bond Vigilantes, Bank of Mexico Slashes Interest Rates

The current actions of Mexico’s central bank is an example of what I call as policy shaped and driven by the philosophical ideology of the “euthanasia or the rentier”, or of the entrenched creed that economic growth can only be spurred by abolishing interest rates which have been seen as obstacles of “scarcity value of capital” through unlimited ‘free lunch’ credit expansion.

From the Wall Street Journal Economics Blog:

The Bank of Mexico surprised the market and most analysts Friday with a quarter-percentage-point interest rate cut, and in the process set central bank watchers squarely into two camps: those who see it as a one-off event and those who expect further easing if the economy continues to struggle.

The central bank, led by Governor Agustín Carstens, was clear in its reasons for cutting the overnight rate target to 3.75%: the economic downturn in the second quarter was “faster and deeper” than expected, and the slack in the economy is likely to remain for a prolonged period.

The bank acknowledged that economic growth this year will be well below the 2%-3% estimate it gave in August, about a week before the National Statistics Institute released the bad news about second-quarter gross domestic product, which contracted 0.7% from the first quarter and was up just 1.5% from a year earlier.

Never mind if the current woes have been created by the same solutions policymakers earlier applied to artificially bolster the economy.

Since the 2008 US crisis, Mexico’s monetary policies via official rates had been zero bound.

The consequence has been to balloon or more than double private sector debt.

And the other ramification has been to expand government spending financed by external debt.

Low interest has enabled the Mexican government to indulge in a spending spree.

But through the period where zero bound rates prompted for a debt financed growth, Mexico’s annual GDP growth rate has been in a conspicuous decline where quarter on quarter GDP growth has even turned contractionary or negative during the second quarter

And part of the negative 2nd quarter growth can be traced to a spike in Mexico’s 10 year bond yields. 

Domestic credit markets which rates have been tied to such bond benchmark has extrapolated to higher interest rates. Higher rates have thus became a drag on a debt finance statistical growth.

And coincidentally the arrival of the bond vigilantes has only unmasked the diminishing returns of a credit driven statistical boom.

And another symptom of the damage from the bond vigilantes has been the falling Mexican peso.

USD-MXN has been on the rise over the same period.

Aside from Peso and bonds, the Mexican benchmark the Bolsa plunged towards the bear market, over the same period. The Bolsa bounced back strongly from June lows, but have showed renewed signs of infirmity.

It remains to be seen who will be proven right and who will look like a fool, the bond vigilantes or the Bank of Mexico.

Bottom line: The contemporary central banker know only of one solution to economic woes: to permanently blow quasi-booms via zero bound rates and by adding asset purchasing programs for the same goals. Never mind if such policies has ever been effective. The policy recourse as if shaped by intuition has been the same.

Someone previously noted that doing the same things over and over again and expecting different results is called insanity. Insanity via permanent boom bust cycles have become the dominant governing monetary policies of the global economy.

BoE's Andy Haldane: Bursting of the biggest bond bubble in history is the biggest financial risk

So Bank of England’s Andy Haldane admits to the monster central bankers have spawned.

From the Telegraph.co.uk

Andy Haldane, the Bank of England's executive director for financial stability, believes the biggest risk to the global financial system is a "disorderly" bursting of the bond bubble created by quantitative easing. 

He told the Treasury Select Committee on Wednesday that bond market had seen “shades of that" in the spike in bond yields around the globe after the US Federal Reserve said it was looking to taper its massive stimulus. 

“We have intentionally blown the biggest government bond bubble in history,” he said at hearing on the reappointment of officials to the Financial Policy Committee, created to monitor broad risks to the financial system. 

If central bankers acknowledge that withdrawing stimulus would burst the bond bubble and trigger financial instability would they proceed with that? Hardly. 

But again continuing to inflate the unsustainable bond bubbles will produce an eventual bust. 

Long term US treasury yields, for instance, has been inching higher since the 2nd half of 2012 or even before the FED’s unlimited QE 3.0 as previously discussed. With the FED’s QE 3.0, the rate of increases of bond yields accelerated. So in order not to lose credibility, the FED had to put on the make up and blabber about “tapering” which media reasons backwards. 

So if QE today pushes up yields, and withdrawing QE will also drive up yields then both will end up with the same scenario: the bursting of the bond bubble. 

Damned if you, damned if you don’t 

And the initial hissing of the bond bubble has already been crushing many markets including ASEAN markets. What more of a full scale implosion?

How about the accountability of central bankers for the coming devastation?

The Religion Called Central Banking: Swiss National Bank Edition

The worship of central banking as superheroes continues

From today’s Bloomberg headline: Swiss Seen Immune From Euro Recession as SNB Holds Firm

The Swiss National Bank (SNBN) has shielded the economy from the effects of the slump in the euro region with its currency ceiling of 1.20 francs per euro. Such a policy has helped ensure Switzerland suffered only one quarter of contraction since the cap was imposed in September 2011, and an unemployment rate about a quarter of that in the 17-nation bloc.

So far yes.

But what will be the long term costs of shielding the economy by massively expanding the SNB’s balance sheets? 

Media believes in the philosopher's stone or of attaining something from nothing or that there are no costs from money printing.

But the Swiss government and the SNB’s policies has prompted for a ballooning of external debt.

Likewise domestic credit to the Private sector continues to swell

Moreover the growth of domestic credit Provided by the Banking sector has been accelerating.

Swiss stock market measured by the SMI has been making a run but still short of the 2007 high. Above charts courtesy of tradingeconomics.com

Swiss housing prices continues to spiral higher. The reflexive feedback loop in play Higher prices, more debt.  More debt. Higher prices

And the Swiss banking sector as % of GDP is about to 400% which ranks third only to France and Netherland.

Unless one comes to believe that interest rates will stay low forever, the crux of the question is how will all these measure up when interest rates rise?

Graphics: Here Comes Super-Abenomics!

From this week’s cover of the Economist magazine.

The worship of inflationists and the religion of inflationism has reached new heights. Yes we are at the pinnacle of the central banking-inflationism bubble.

As the great Ludwig von Mises once wrote, “The favor of the masses and of the writers and politicians eager for applause goes to inflation.”

Yet all such optimism looks nothing new. The following article from the New York Times in March 1999 showcases an almost similar level of optimism where interventionism has been seen as an elixir to Japan’s economy.

Fourteen years after, yet still the hope for political magic to work.

US Federal Reserve’s James Bullard: Why Unemployment Targets Won’t Work

For the mainstream, macro-policies such as inflationism has been immensely expected to solve “micro” problems. The popular wisdom specifically fixates on the “money illusion” or “price illusion” effects of inflationism, where experts see people as having the tendency to think of currency in nominal, rather than real, terms (wikipedia). 

In short, so-called experts think that people hardly think at all. Everyone of us, except them, are boneheads.

The premise where people can hardly feel, notice and respond to the changes in the purchasing power of their nominal currency serves as justification for governments to manipulate money supply intended to DECEIVE people into attaining so-called economic objectives, like lowering real value of wages. (So much for so-called "virtuous" and "transparent" governments) 

Well it does seem that even some officials of the US Federal Reserve recognize the folly of such premise.

Austrian economist Joseph Salerno at the Mises Blog refers to the dissent by US Fed President of St. Louis James Bullard on unemployment targets: (bold mine)

The Fed has committed itself to maintaining its zero interest rate policy as well as quantitative easing for as long as the unemployment rate remains above 6.5 percent (and inflation rate below 2.5 percent). James Bullard, the President of the Federal Reserve Bank of St. Louis, heroically dissents from this policy of unemployment targeting, which is basically a reversion to the crude and discredited Old Keynesian doctrine. In a speech last month entitled “Some Unpleasant Implications for Unemployment Targeters”, Bullard, himself a New Keynesian inflation targeter, stated:

Attempts to address the various labor market inefficiencies solely with monetary policy do not work very well because improvements on one dimension are simultaneously detriments on other dimensions. . . . monetary policy alone cannot effectively address multiple labor market inefficiencies, and so one must turn to more direct labor market policies to address those problems.

Unfortunately, President Bullard did not articulate those “more direct labor market policies,” but they would include: the repeal of minimum-wage legislation, which destroys jobs for the unskilled; the repeal of the National Labor Relations Act, which coerces employers into collective bargaining and privileges union “insiders” against non-union “outsiders” causing unemployment or lower wage rates among the latter; and the phasing out of unemployment “insurance,” which encourages unemployed workers to spend an excessive amount of time in “searching” for jobs.

In short, mainstream’s oversimplification of micro conditions as merely driven by a SINGLE variable (price levels) signifies as arrant myopia. 

There are many more or equally important factors, such as the state of property rights and other political hurdles (regulatory environment, taxes, mandates, unionism and etc..) that influence people’s incentives to conduct commercial activities.

Moreover, price level manipulation theories hardly ever consider the invisible (opportunity costs) and the secondary effects of such policies: particularly price instability (boom bust cycles, stagflation, hyperinflation) and economic discoordination.

The reality is that so-called economic objectives have been used as front or as excuse for the real design: transfer of wealth from society to the political class and the politically connected groups.

Ironically, the gist of the wisdom of economic talking heads which mainly belittles on people’s capacity to think, is founded on self-deception (from highly flawed model based assumption) and on the pandering to the political class.

Yet many fall prey to the political contrivance, "lies told often enough becomes the truth"

Parallel Universe: Booming German and French Stocks as Economies Stagnate

In a the world where central bankers have become demigods, the disconnection between the financial markets and the real economy have increasingly become evident.

From the Bloomberg:

The German economy expanded less than forecast in the first quarter and France’s slipped into recession, increasing pressure on the European Central Bank to do more to stimulate growth.

German gross domestic product rose 0.1 percent from the fourth quarter, when it fell a downwardly revised 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a 0.3 percent gain, according to the median of 41 estimates in a Bloomberg News survey. The French economy contracted 0.2 percent in the three months through March after shrinking the same amount in the final quarter of last year.

The above data revealed in the charts below. [Charts courtesy of tradingeconomics.com and stockcharts.com]

 

The German equity market bellwether, the DAX, has been on an uptrend (upper pane) since October 2011 even when statistical economic growth peaked during the first semester of 2010 and continues to worsen (lower pane). Thus, the two year divergence can hardly be interpreted as anomaly.

Year to date, the DAX, as of yesterday’s close, has been up 9.55% even as statistical economic growth is at the borderline with the negative.

The French phenomenon seems even more elaborate.

The French equity market as measured by its bellwether, the CAC, has been on an uptrend along with the German DAX where both began to reverse near simultaneously higher during the last quarter of 2011.

Ironically, the French economy has been zigzagging mostly in the recessionary territory (lower window) even as the stock market continues to boom through 2012 (upper window).

Once again, the French economy has been reported above as enduring a statistical recession, but the CAC has been up 10.38% year to date as of yesterday's close.

The above has been exhibiting the unintended consequences of central bank policies.

The micro or the real economy continues to suffer from real economic obstacles (high taxes, more mandates, relative price distortions, regulations and etc….) which deters investments, but adds to the incentives generated by easy money policies in diverting capital towards yield chasing activities in the financial markets, where the latter have also been buttressed by central bank guarantees.

Such parallel universe is a sign of an unsustainable bubble in progress. 

For now we see a boom. Eventually we would either see a grand bursting of these bubbles that would likely lead to cascading wave of debt defaults or a currency crisis.

Doing the Same Thing and Expecting Different Results: 511 Interest Cuts and Sluggish Economic Growth

I pointed out that global policy rates are at the lowest level ever. This was even added with yesterday’s  surprise cuts from 6 nations conducted over 24 hours.

The following Bloomberg article says that even after South Korea’s actions yesterday, which marked the 511th rate cut since 2007, the global economy continues to struggle:

Global central bankers are poised to ease monetary policy even further after a wave of interest-rate cuts from India to Poland.

As Group of Seven finance chiefs gather in the U.K. today with monetary policy on their agenda, economists at Morgan Stanley and Credit Suisse Group AG are among those predicting policy makers will keep deploying stimulus amid weak global growth, slowing inflation and the need to thwart currency gains…

South Korea’s rate cut yesterday was the 511th reduction worldwide since June 2007, according to Bank of America Corp.’s tally, done before Vietnam and Sri Lanka today said they’re lowering their policy rates. While the liquidity has sent stock markets surging, it has yet to prove as effective in generating economic growth.

So far the main effects of all these cuts has been to boost asset prices. From the same article:

Equities are rallying amid the easy monetary policy. The Standard & Poor’s 500 Index (SPX) set a record level this week and the Dow Jones Industrial Average last week climbed to 15,000 for the first time. In Europe, stocks have also risen and even the yields on the 10-year notes of crisis-torn Greece have slipped below 10 percent.

511th cut has done little to the global economy:

Behind the stepped-up stimulus: Another swoon in the global economy barely five years after it fell into its deepest recession since World War II. A Citigroup Inc. gauge shows economic data in major economies began coming in below forecasts in the middle of March and the index is now near its weakest since last August.

Central bank actions have been filling in, in lieu of the government

Maxed-out budgets mean governments are also struggling to aid their economies, with those in Europe having to ease their austerity drive. U.S. Treasury Secretary Jacob J. Lew will tell the G-7 that nations should focus on spurring domestic demand, according to a Treasury official.

Some observations:

Central bankers don’t seem to understand that in economics there is such a thing called the law of diminishing returns.

Central bankers have been pushing for the same debt based consumption growth model even when most of the world has now been satiated with debt.

Central bankers from most countries appear to have synchronized their actions. In short everyone seems as doing the same thing or singing the same tune.

Central bank policies serially blow asset bubbles. 

Price distortions in the real economy from central bank policies and from other financial repression measures as well as other interventions reduce incentives for productive activities. 

On the other hand, central bank’s cheap money AND guarantees (explicit and implicit) on the financial markets encourage rampant speculations, thus driving up unsustainable bubbles.

So money shifts to speculation on financial markets rather than on investments. Thus the parallel universe: booming financial markets amidst near stagnant economies.

Yet bubbles from zero bound rates will reduce savings and capital accumulation. Such diminishing growth will impel for more easing.

This means that central banks will keep pushing zero bound rates and asset buying programs to the limits.

Central bankers have come to believe that a new order exists. The new paradigm: Sustained credit and money expansion under today’s modern central banking will have little effects on price inflation. So there are no limits for inflationism. Because of this policymaking nirvana, they have even hailed as Superheroes and demigods by media.

Central banks don’t realize of the micro effects of their policies, particularly that each bursting of the bubble shrinks the real economy and makes them vulnerable to price inflation. The coming crisis will likely reveal more signs of this.

So central bank policies will keep inflating on more asset bubbles that will become systemically bigger until the system cracks.

Central banking bureaucracy have assumed political supremacy over the elected governments through the intensification of monetization of government debts.

As Chicago University John Cochrane aptly notes: (italics original)

Modern financial systems are fine. Modern political systems have abandoned rule of law in favor of a monarchic rule by discretion of appointed bureaucrats. That is incompatible with any financial system.

Since actions of governments of crisis stricken nations have partly been shackled from too much debt, the next phase will not only be central bank easing but will soon include direct confiscation of savings (pensions and depositors).

Media doesn’t seem to recognize that all these signify as doing the same thing over and over again and expecting different results.

The lesson from the above: People believe in insanity and in lies.

Record Low Global Monetary Policy Rates and the Parallel Universe

Central Banks are in a record spree of slashing interest rates.

Notes the Central Bank News:

Global interest rates fell further last month as eight central banks eased their policy stance - most notably the Bank of Japan with its “new phase of monetary easing” - pushing the average global monetary policy rate down to 5.70 percent at the end of April from 5.79 percent at the end of March and 6.2 percent at the end of 2012.

Central banks cut their key rates by a total of 774 basis points in April, the highest monthly amount this year, boosting this year's total rate cuts to 1876 basis points.

Central bankers continue to believe that zero bound rates will spur the economy.

But there has been little evidence on these.

Danske Bank believes that it will work, even if Euro and China’s economic growth rate have been on a decline since 2010 while the US economy zigzagged.

Despite their bullishness, the OECD’s leading economic indicator (LEI) also reveals of stagnation.

Meanwhile, the Zero hedge points to a Goldman Sachs outlook which sees a downside risk from the LEI.

In short, most of the bullishness has been wishful thinking. 

The reality is that zero bound rates have produced nothing but marginal growth, if not stagnation, and a rapidly expanding debt.

Yet global central banks continue to force the issue. They don’t seem to realize that there is such a thing called diminishing returns.

Next, macro policies don’t address the real micro socio-economic problems: specifically policy obstacles on capital accumulation via voluntary trade and production. 

On the contrary, zero bound rates which spawns price instability distorts economic calculation. Such policies instead promotes rampant speculation rather than productive activities.

So you have rising stock markets globally as shown by the MSWorld or the MSCI World (ex USA) Index, the emerging markets via the MSEMF or the MSCI Emerging Markets Free Index (EOD) and in Asia through the AAXJ or the iShares MSCI All Country Asia ex Japan Index Fund, even as global growth have been marginal or in stagnation. 

Why invest when there has been big uncertainties on the direction of policies and prices? Why invest when all these raises the cost of doing business and increases the hurdle rate for the survival of businesses? 

And why not trade financial markets instead when there has been implied or direct guarantees on them?

The parallel universe or financial market-real economy disconnect only means more capital are being misallocated on short term yield chasing debt expanding activities. Such parallel universe are manifestation of bubble cycles. This also means deepening of systemic fragility.

Yet political authorities continue to ante up on policies that don't work.

 

The thrust to abolish interest rate represents a fallacious doctrine embraced by policymakers who believe in the inflation elixir which have been based on "something for nothing concept" or the sham miracles of interventionism. All these will have bad consequences. 

As the great Ludwig von Mises warned:

In the eyes of cranks and demagogues, interest is a product of the sinister machinations of rugged exploiters. The age-old disapprobation of interest has been fully revived by modern interventionism. It clings to the dogma that it is one of the foremost duties of good government to lower the rate of interest as far as possible or to abolish it altogether. All present-day governments are fanatically committed to an easy money policy.

The Atlantic on Philippine Economic Boom: Looks Great on Paper

I spoke about unevenness of the Philippine boom last weekend

“Protectionist reflexes on sensitive sectors” represents as the “concentrated” segments of the economy that are controlled by the unholy alliance of political elites and their cronies. They are the key beneficiaries of today’s central bank asset market friendly policies. Many of them are into the yield chasing bubbles in the real economy. And so the unevenness of the much touted economic boom.

On the same issue, I also wrote about the discrepancy of today’s supposed economic boom in the lens of jobs or employment

Nonetheless what arouses my curiosity is that the much ballyhooed economic boom tagged as the “Rising Star of Asia” seems to have been “concentrated” on few sectors of the economy. And this is most likely the reason behind the supposed “boom” in joblessness, as pointed out by the survey.

Even the government’s statistics has not shown any material improvement in joblessness, despite Phisix at 7,200, the Peso at 40s or 6.6% GDP growth in 2012.

Today on the Bloomberg

Jeany Rose Callora left her home on the Philippine island of Negros last year to work at a soft- drinks factory in Manila, hoping to earn money for college. When her contract ended six months later, she said she couldn’t get another job in Southeast Asia’s fastest growing economy.

“I’ll do anything: saleslady, factory worker, waitress,” the 20-year-old high-school graduate said as she waited 11 hours for an interview in an employment agency in Manila, surrounded by dozens of other applicants.

Callora is one of 2.89 million unemployed Filipinos, swelling a jobless rate that climbed to 7.1 percent in January from 6.8 percent the previous month. About 660,000 positions have been lost since October 2011, even as the economy expanded 6.6 percent last year.

The nation is struggling to reconcile a lack of jobs for people like Callora, who have little training, with a shortage of skilled workers in industries such as information technology and shipbuilding. While the economy is being boosted by call centers and remittances from workers who moved abroad, the country’s poverty level hasn’t decreased since 2006.

Now the Atlantic on the Philippine paper tiger boom.

But that economic growth only looks great on paper. The slums of Manila and Cebu are as bleak as they always were, and on the ground, average Filipinos aren't feeling so optimistic. The economic boom appears to have only benefited a tiny minority of elite families; meanwhile, a huge segment of citizens remain vulnerable to poverty, malnutrition, and other grim development indicators that belie the country's apparent growth. Despite the stated goal of President Aquino's Philippine Development Plan to oversee a period of "inclusive growth," income inequality in the Philippines continues to stand out.

In 2012, Forbes Asia announced that the collective wealth of the 40 richest Filipino families grew $13 billion during the 2010-2011 year, to $47.4 billion--an increase of 37.9 percent. Filipino economist Cielito Habito calculated that the increased wealth of those families was equivalent in value to a staggering 76.5 percent of the country's overall increase in GDP at the time. This income disparity was far and away the highest in Asia: Habito found that the income of Thailand's 40 richest families increased by only 25 percent of the national income growth during that period, while that ratio was even lower in Malaysia and Japan, at 3.7 percent and 2.8 percent, respectively. (And although critics have pointed out that the remarkable wealth increase of the Philippines' so-called ".01 percent" is partially due to the performance of the Filipino stock market, the growth of the Philippine Composite Index during that period would not account for such a dramatic disparity from neighboring countries.) Even relative to its regional neighbors, the Philippines' income inequality and unbalanced concentrations of wealth are extreme.

This is obvious. We have an asset boom fueled by central bank policies. 

The major beneficiaries have been the politically connected elites whom has mainly benefited from government bubble policies, particularly from zero bound rates and the SDA.

As pointed out by Matthews Asia about 83% of the total market cap of publicly listed economies in the Philippines are held by a few families.

The Philippine stock market remains “concentrated”, which to paraphrase the Atlantic: The stock market boom has brought about an “increased wealth of those families was equivalent in value to a staggering 76.5 percent of the country's overall increase in GDP at the time”.

Given low penetration level of domestic stock market participants (1% or less) the boom has had residual effects on the economy. Retail participants are the poor folks lured by the easy money policies, who will bear the brunt of the losses, since many of these elites will eventually be rescued.

The other beneficiaries are foreign speculators who are also on a yield chasing mode due to their own easy money policies practiced by their respective central banks.

The failure of the Philippine Stock Exchange [PSE: PSE] to diffuse stock market ownership has also been one of the factors. For instance the refusal to hook up with the ASEAN trading link essentially means preserving the status quo of the high concentration of stock market ownership.

Equally asset boom means a boom in real estate. So rising asset markets also adds to the ballooning policy induced wealth inequality.  

Philippine Housing Prices has been in a bull market (tradingeconomics.com).

But one cannot look at housing alone as the Philippines has bubbles in shopping malls, vertical commercial or office and the casino.

And this is why today’s BSP’s engineered boom essentially means a redistribution program in favor of the elites and the banking system at the expense of the purchasing power of the members of society or the general economy. 

Political promises to deliver jobs will fail for the simple reason called interventionism and corporate protectionism or crony capitalism.

Today’s easy policies can be analogized as taking from the poor and giving to the rich. This is what media hails as the good governance economic model.

Look at the income statement by Philippine banking system as provided by the BSP.

The distribution of bank earnings from interest and non-interest as of December 2012 is 60-40. If you look at the non-interest portion of banking system’s income, they are mostly into fees and commissions, Gains/(Losses) on Financial Assets and Liabilities Held for Trading, Gains/(Losses) from Sale/Redemption/Derecognition of Non-Trading Financial Assets and Liabilities and Foreign Exchange Profit/(Loss)

In short, the non-interest income segment of the Philippine banking system largely relies on the continuation of an asset boom.  

The balance sheet of the Philippine banking system as provided by the BSP also demonstrates of the same story.

Aside from cash and loans portfolios, the banking system principal assets consist of Financial Assets, excluding Equity Investment in Subsidiaries/Associates/ Joint Ventures, net of amortization, Financial Assets, net of Allowance for Credit Losses and Equity Investment in Subsidiaries/Associates /Joint Ventures.

Again income and assets of the Philippine banking system principally depends on BSP’s easy money or bubble policies. This also shows how the banking system, or might I say a banking cartel, has been a politically preferred agency by the BSP.

People hardly realize that a bubble bust would effectively shrink both interest and non-interest earnings of the banking system that risks transforming a slowdown or a recession into a banking crisis.

So, the so-called “strength” or “boom” by the Philippine banking system and the economy are no more than a hype or a spin behind the scenes from the manipulations mostly through monetary policies. 

Again this wonderful reminder from the great Ludwig von Mises:

All governments, however, are firmly resolved not to relinquish inflation and credit expansion. They have all sold their souls to the devil of easy money. It is a great comfort to every administra­tion to be able to make its citizens happy by spending. For public opinion will then attribute the resulting boom to its current rulers. The inevitable slump will occur later and burden their successors. It is the typical policy of après nous le déluge. Lord Keynes, the champion of this policy, says: "In the long run we are all dead." But unfortunately nearly all of us outlive the short run. We are destined to spend decades paying for the easy money orgy of a few years.

The days of the easy money orgy are numbered.