Are Central Banks Ruling The World?

Eight years ago, the U.S. economy started to blaze a trail through uncharted territory. Soon, the rest of the world was following.

Not much different than the Pilgrims leaving Europe for the New World or the pioneers heading West, with the near-collapse of the financial system nations set out on a new economic path that at once was necessary as well as fraught with the dangers of the unknown.

We have left the world where financial institutions run the day-to-day activities of free markets. Those days are in the past.

We have arrived where central banks rule the world. While this isn’t the end of our journey, the repercussions of having free markets artificially sustained by national monetary policy is becoming clearer.

Beyond The Point Of No Return

There are two things moving the markets right now: Oil prices and the U.S. Federal Reserve.

Oil prices are essentially a “groupthink” indicator on how the global economy is doing. If oil is rising, stocks rise exuberantly, assuming the economy is rebounding. If oil is falling, the economy is losing ground and stocks sell off, hard.

The problem is, stocks are trading this way daily, sometimes hourly. Volatility is extreme because no one wants to be caught holding a position that may head south quickly, especially fund managers and institutional investors that make up most of the trading volume.

This hurts the individual investor more than the big traders. It hurts pensions, 401(k)s, IRAs, and CDs. Simply put, this hurts the individuals who drive the U.S. economy by buying, making and selling real goods.

This is why it’s crucial that you stop listening to the noise about stocks and oil and understand what underpins all of it: the central banks’ role in shaping our economy and the world’s economy.

Our New Central Bank World

We are beyond the border of normalcy. We are bushwhacking through new territory and no one knows how this will end. But we do know where we are, relative to where we’ve been.

For many years, the U.S. put in place “quantitative easing” (QE) which was the Fed’s first attempt to re-inflate the economy. But as it continued this, and other major countries joined in, the financial system got used to this “financial system welfare” and readjusted its business to game the new system.

Now, all these financial institutions are living off the central banks’ easy money policies and threatening that if they change their ways, they will collapse. This is the same argument they made initially – except it’s eight years later. This is the ultimate realization of artificially saving the financial markets in 2008.

The problem for the central banks is that they really can’t do much more to try to re-inflate their economies. And knowing what they know, they have no desire to let the free market sort it out because the system would collapse. So, they’re pumping air in a tire that still has a hole.

Buzzwords to know: ZIRP and NIRP

After four rounds of QE, the Fed and others went to ZIRP – zero interest rate policy. This meant banks could borrow from the Fed, for example, at 0 percent. The goal was to get banks lending money again to small businesses and individuals.

But the banks decided that was too risky, so they simply bought U.S. Treasuries and threw some money in the markets (hence the strong dollar and higher stocks not due to corporate strength but due to QE financing). And instead of lending, the banks continued to make it nearly impossible for any company without excellent credit to borrow at a low rate.

The latter stage of ZIRP also brought on the junk bond craze, when banks started lending at high rates to lower credit companies. But that only works when an economy is on a growth track.

Growth in the U.S. is a myth perpetrated by the politicians, bankers and corporate leaders to keep consumers cheery and buying.

Now, the junk bond market is collapsing like oil, and the institutions are moving their money back to Treasuries. ZIRP has failed.

The next step is NIRP – negative interest rate policy. And it’s already a fact in Germany, Japan, Sweden and many other nations.

What NIRP means is, companies pay the central banks to keep excess reserve deposits with the central banks. The goal here is to force the financial institutions to lend money to boost the economy and penalize them for not doing so.

What it shows is the banks are unable, even eight years later, to survive without significant help from the central banks. The financial institution is now built around the central banking system’s generosity.

There is a growing amount of discussion in the U.S. about moving to NIRP. The real question is whether it’s even feasible – or legal.

But the biggest issue is, all the money in money markets (a valued storage spot for individual and institutional short-term cash) that would be hurt by NIRP. That would have significant negative repercussions across all markets and economies.

The junkie has a gun to the head of the dealer. Again. NIRP in the U.S. would be seismic.

Go For The Gold… And The Silver

This is why it’s essential to immediately move at least 10%-15% of your investment dollars out of the stock market and put those assets in gold and silver in order to preserve your current wealth. We have barely skimmed the surface of this turmoil, and you need insurance covering your wealth...and that insurance is silver and gold.

These hard assets will be the safety valve, NOT the U.S. dollar. But the dollar is too easily manipulated, and with China's plan to become the first gold backed world currency, the dollar is on its way to zero. Stick to gold and silver, either directly purchased bullion or non-collectible coins or through exchange-traded funds that hold gold as your proxy. For a reliable source, The Time Line News highly recommends www.tcb-formula.com for all silver and gold needs.

At best-case scenario, the U.S. economy continues to mope along, but if the U.S. economy likely slows even more, it’s going to be a blood bath.

As long as the global financial and industrial institutions are more concerned with their own viability than taking their place, and the ensuing responsibility, in the economy, most individuals are far up an unknown creek without a paddle and the sun is setting as it begins to rain.