In the Game of Banks, Value Seekers Lose

15.09.2016 • Central Banks

From Tim Price – The Price Report (Great Britain) –

In a war between governments and markets, who wins? Eight years into what Lord Rothschild has just called “the greatest experiment in monetary policy in the history of the world”, we are in the process of finding out. So far governments have been winning most of the battles.

But then we don’t have free markets any more. The chart below shows the extent to which government involvement in the capital markets is starting to crowd out everybody else. It shows the combined size of the world’s six biggest central banks, namely the Swiss National Bank, our own Bank of England, the Bank of Japan, the People’s Bank of China, the European Central Bank, and the US Federal Reserve. It shows their size in trillions of dollars, and as a proportion of global GDP. The impact of the financial crisis in 2008 is clearly visible: all those balance sheets start to explode higher.

Unlike a private sector investor, a central bank can create money out of thin air and then use that newly created money to buy financial assets. If any of us as private investors even attempted the same thing we would quickly end up in jail.

The biggest central banks now own the equivalent of 40% of global GDP. If things continue at the same pace, in two years’ time they will control the equivalent of 50% of global GDP. Can this figure reach 100%? What would happen to the structure of markets if it did?

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