NZ rates fall to record lows, driven by RBNZ QE. NZD underperforms against other commodity currencies. EUR weak ahead of German constitutional court decision tonight

The RBNZ’s aggressive QE stance is NZD-negative as the Bank’s actions continue to drag NZ rates down, with falls to record low levels across much of the curve – NZ’s benchmark 10-year government rate (2031) closing down 4bps to 0.73% and the 3-year bond trading down to just 0.07%. The 5 and 10 year swap rates fell 2-3bps to record lows of 0.31% and 0.69% respectively. Many are beginning to question the RBNZ’s strategy here, given the overwhelming distortions it is generating in the market [My bold]

V. The Central Bankers’ Goal

During the last four decades, many asset bubbles and banking crises have marred the economy and pushed society off balance. There have been well over 100 banking crises and subsequent recessions during this time period. These boom-bust cycles have caused an unprecedented transfer of wealth from the many to the few. This redistribution of incomes and wealth has resulted in unprecedented levels of inequality.

This time period also coincides with a period of unparalleled power in the hands of central banks. Under pressure from the IMF and, in Europe, Brussels legislators, country after country made their central bank independent from governments and usually – and surprisingly – also independent from and unaccountable to parliaments. Thus lacking the constraints of the normal democratic process, central banks have been free to choose their tools, targets and modus operandi. They have been entirely free to choose their policies.

The job of central banks has been to engage in monetary policy in order to deliver stable prices, stable growth and stable currencies. However, central banks have thoroughly failed in this, as the frequency and amplitude of business cycles has increased during this time period, and more traditional cycles of growth and recession have been replaced by boom-bust cycles.

The creation of the newest major central bank, the European Central Bank, is a case in point. The treaties that established it granted it unprecedented powers, unchecked by any democratically elected assembly. This was unprecedented, but only in the post-war era. As I argued in my 2003 book Princes of the Yen and an academic research paper (Werner, 2006), the ECB was not modelled on the successful Bundesbank in Frankfurt, but the disastrous prior German central bank, the Reichsbank, which created asset bubble and bust, deflation, hyperinflation and essentially caused the economic chaos that helped bring Adolf Hitler to power, after which the Reichsbank, under the leadership of the same man that had created this chaos in the 1920s, then reflated rapidly, rendering this previously marginal fringe-politician highly popular. The problem with the Reichsbank was its excessive independence and lack of any accountability to German institutions or parliament whatsoever. Thus the founders of post-war Germany were wise to change the new central bank’s status by significantly curtailing its independence: the Bundesbank was made accountable and subordinated to Parliament, as one would expect in a democracy. It became probably the world’s most successful central bank. While the Brussels centralisers, when pushing the Maastricht Treaty (signed in 1992), portrayed the ECB as having been modelled on the successful Bundesbank (also situated in Frankfurt), the truth could not have been further from it. Instead, the ECB was made independent from and unaccountable to any democratic assembly, as well as to governments. The ECB had in fact been modelled on the disastrous Reichsbank.

Based on this analysis, I warned in 2003 that the ECB was likely to abuse its excessive powers by creating vast credit booms, asset bubbles and banking crises in the Eurozone. This it duly did, from 2004 to 2008 in Ireland, Portugal, Spain and Greece, as well as other parts of the Eurozone. As it turned out – and as we know from former ECB head Jean-Claude Trichet’s speech in Aachen in 2011 – the goal of ECB policy was not to create stability. Instead, it was the insidious plan to cause havoc, by creating asset bubbles that could then be pricked, all the while blaming greedy speculators and bankers. The ensuing recession could be used as justification for deep structural reforms (as the Bank of Japan has done in Japan, the Bank of Thailand after the Asian crisis), and, more importantly, in order to introduce a United States of Europe with centralized monetary and fiscal powers. The latter goal of a ‘European Finance Ministry’, so desired by ECB-head Trichet, was essentially achieved thanks to the crisis with budgetary control now residing in Brussels, and a supranational ESM having been established that can de facto operate as European finance ministry, without any democratic accountability – or even scrutiny by any policy force or public prosecutor. A senior member of the ECB council and for many years governor of one of the national central banks that are part of the ECB confirmed in private and off-the record discussion how he was shocked at the democratic deficit of the ECB and how it had abused its powers to achieve political goals, such as in the ‘negotiations’ with the humiliated Spanish and Greek governments.

Central banks are now in the process of consolidating their powers. They wish to get rid of competition in the form of paper money or bank credit. They are driving both cash and bank credit out of business through their negative interest rates, which are not designed to stimulate the economy, but to create deflation and further havoc. – Havoc that they intend to instrumentalise to accelerate their goal of becoming the complete masters of our lives, by allowing only digital currency that they issue and control – and that they can monitor in terms of all transactions, and that they can switch off, if, for instance, some pesky dissident criticizes them too much.

On this road to Orwellian totalitarianism by the central planners at the central banks, it is only a small further step to argue that the little chips on our digital cash cards would be safer – in the name of combatting crime again! – if one embedded them under the skin of our right hands, or our foreheads.

“He also forced everyone, small and great, rich and poor, free and slave, to receive a mark on his right hand or on his forehead, so that no one could buy or sell unless he had the mark, which is the name of the beast or the number of his name”
(Rev 13:16-17). Link

Graphic evidence of ECB failure

Is this a good time to lock in some 5year money?