Nomi Prins: The Volatility/Quantitative Easing Dance of Doom

By Nomi Prins, a former investment banker, now a journalist, best-selling author, and speaker. Her latest book is All the President’s Bankers, which examines the relationships of presidents to key bankers over the past century and how they impacted domestic and foreign policy. Originally published at her website

The battle between the ‘haves’ and ‘have-nots’ of global financial policy is escalating to the point where the ‘haves’ might start to sweat – a tiny little. This phase of heightened volatility in the markets is a harbinger of the inevitable meltdown that will follow the grand plastering-over of a systemically fraudulent global financial system. It’s like a sputtering gas tank signaling an approach to ‘empty’.

Obscene amounts of central bank liquidity applauded by government leaders that have protected the political-financial establishment with failed oversight and lack of foresight, have coalesced to form one of the most unequal, unstable economic environments in modern history. The ongoing availability of cheap capital for big bank solvency, growth and leverage purposes, as well as stock and bond market propulsion has fostered a false sense of economic security that bares little resemblance to most personal realities.

We are entering the seventh year of US initiated zero-interest-rate policy. Biblically, Joseph only gathered wheat for seven years before seven years of famine. Quantitative easing, or central bank bond buying from banks and the governments that sustain them, has enjoyed its longest period of existence ever. If these policies were about fortifying economic conditions from the ground up, fostering equality as a force for future stability, they would have worked by now. We would have moved on from them sooner.

But they aren’t. Never were. Never will be. They were designed to aid big banks and capital markets, to provide cover to feeble leadership. They are policies of capital creation, dispersion and global reallocation. The markets have acted accordingly.

What began with the US Federal Reserve became a global phenomenon of subsidizing the financial system and its largest players. Most real people – that don’t run hedge funds or big banks or leverage other peoples’ money in esoteric derivatives trades – have their own meager fortunes at risk. They don’t have the power of ECB head, Mario Draghi to issue the ‘buy’ order from atop the ECB mountain. Nor do they reap the benefits.

Retail sales are down because people have no extra money and can’t take on excess debt through credit cards forever. They aren’t governments or central banks that can print when they want to, or big private banks that can summon such assistance at will.

Federal Reserve Chair, Janet Yellen recently chastised these bankers. This, while the Fed has become their largest client and the world’s biggest hedge fund. While she wags her finger, the Fed is paying JPM Chase to manage the $1.7 trillion portfolio of mortgage related assets that it purchased from the largest banks. In other words, somewhere along the line, the public is both paying to buy nefarious assets from the big banks at full value, thereby supporting an artificially higher price and demand for these and similar assets, and paying the nation’s largest bank for managing them on behalf of the Fed. Yellen says things like “poor values may undermine bank safety” and all of a sudden she’s on an anti-bank rampage? What about the fact that just six banks control 97% of all trading assets in the US banking system and 95% of derivatives? Or that 30 banks control 40% of lending and 52% of assets worldwide?

Think about the twilight zone squared logic of this. Yellen’s predecessors, Alan Greenspan and Ben Bernanke, enabled the path of the US banking system to become more concentrated in the hands the Big Six banks, which have legacy connections to the Big Six banks that drove the country to disaster during the 1929 Crash, and have been at the forefront of the nexus of political-financial power polices for more than a century. Yellen had a seat at the Clinton administration banking deregulation table when Glass-Steagall was summarily dismantled thereby enabling big banks to become bigger and more complex and risky. Those commercial banks that didn’t hook up with investment banks back then, got their chance in the wake of the financial crisis of 2008. They also concocted 75% of the toxic assets that were spread globally and the associated leverage behind them in the lead up to 2008.

Rather than show meaningful initiative to engender safety in the financial system (which if she had, or wanted to, would have rendered her a non-viable candidate for her position), she reprimanded the banks while providing them cheap capital. That’s like egging people with a tendency toward excess on as they gorge on multi-course gourmet dinners, making disparaging comments about their girth, and being dubbed their coach for The Biggest Loser while serving them the next course. Political theatre is its own end.

This latest rise of market volatility, however, is foreshadowing the real end of global QE as a proxy bond investor packaged for political purposes as necessary to combat deflation, increase liquidity, or whatever the reason-du-jour providing the QE program legitimacy beyond its true function of providing cheap capital to the private banking system, is.

The reason that the artificial resuscitation of the entire global financial system has worked as long as it has is due to the collaboration of major governments, central banks, and powerful private banks behind it. These three pillars of power have been mutually reinforcing. Since early 2009, the bond and stock market have soared on the back of external capital from the central banks supported by the elite government leaders of the countries with the largest banks.

Just this year, 23 central banks have cut rates due to ‘sluggish growth’ – as if this cheap money has helped main populations anywhere. In the process their currencies will weaken. The US may have a strong dollar on the back of having had the largest and first QE / ZIRP program which is why (behind the banks’ need) there’s no particular reason – yet – for the Fed to raise rates. Plus, the labor situation is barely improving even if the headline unemployment figures based on low job-market participation and poorly paying jobs appears better. Also, the ‘lower demand’ amidst higher oil production (and some big commodity trading desks) slamming oil prices and blaming Saudi Arabia, has made inflation (outside of the cost of living and the stock market) look tame enough to make rates hikes unnecessary. But the big market players think (or say, anyway) that rate hikes could happen soon. This uncertainty begets higher volatility.

Meanwhile, the Euro is tanking against the dollar because Mario Draghi’s ECB is on a QE roll, buying covered bonds from the likes of Deutschebank, ING, and BNP while pummeling Greece for not wanting to further crucify its population in order to repay funds that had egregious terms to begin with. Their ‘bailout’ had nothing to do with helping Greece attain a stronger economy and everything to do with validating speculators and the banks that sold them bonds. The IMF even sort of admitted this. But the Troika has made plutocratic finance a blood sport.

All this is fodder for triple digit market swings. Somewhere in the madness, lies the notion that this particular policy of speculation subsidization for the upper banking class can’t last forever. There are only so many entities that can buy so many bonds and filter so much cheap capital into the system for so long. At some point the ECB program will run its stated course. Rates around the world will head to zero or somewhat negative. And then what? There will be no more powder in the QE / ZIRP global keg. That’s when it gets really bad.

Meanwhile, the rising volatility we will face this year (to the downside) in the financial markets, will be a forbearer of this unraveling. The best course for mere individuals is to reduce their exposure to the insanity. “Know when to hold ‘em, know when to fold ‘em, know when to walk away” as the lyrics to the old gambling song go. Because rest assured, the big boys are going to be on the financial life rafts first…economic Titanic style. That volatility – it’s the iceberg finally looming.

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  1. James Levy

    I just don’t know. Logic and history point to the inevitability of collapse, but central bank finagling and the political power of the financial sector seem to forestall the crisis time and time again. Governments and media are captured, as is academia. We are losing, as the Archdruid pointed out last week, the power to perceive reality, so how long can we hide reality from ourselves, extending and pretending into the future? I just don’t know.

    1. DanB

      The power and finagling of politicians and financial parasites to forestall thermodynamic realities is nil. What the 1% can do, however, is to use power and finagling to sacrifice and cannibalize more and more of the 99% as ecological processes of overshoot unfold. As this is a financial and economics site, thermodynamic realities are often given a nod but not really appreciated as forces shaping the possibilities for human socioeconomic activity.

      1. Steven

        I suspect you are familiar with the work of Frederick Soddy? (For anyone who isn’t, see “Wealth, Virtual Wealth and Debt”, Soddy, Frederick – ) As for those “thermodynamic realities” they are real enough. I read somewhere they occurred when the earth’s population surpassed 2 billion. But whatever the real number the “finagling of politicians and financial parasites” has created some slack to allow us to adjust to it. For their own purposes (to make more money) they have built an enormous amount of slack (i.e. wasted energy) into the world economy, e.g. a transportation system built around personally owned automobiles, globe spanning lines of supply or the biggest of them all – the military Keynesianism of the US and other governments — under which energy is used to simply ‘blow up’ wealth.

        The point is, while our species right-sizes itself, this waste is available to support those now living – the right to life of which so many Americans are fond of proclaiming (if not paying for).

  2. John Merryman

    I think the issue goes much deeper than corruption at the top. That is just the foam and bubbles of a cresting wave.
    Money is a contract, i.e.. each asset is backed by a debt, yet we are all trained to think of it as a commodity and everyone wants more. Which provides the underlaying momentum for this monetary system. When we realize that all our social, as well as economic connections are being monetized and thus taxed by this system, then society can start to move back towards more organic forms of connectivity and reciprocity and storing value in strong social connections and healthy environments, not just as notations in a financial system. The result will necessarily mean societies which are more interconnected on the local level and less global and that will have its downsides as well. The question will be one of not fighting over which is best, but trying to work the various sides together, knowing there will be inevitable conflicts, but understanding we are all stuck on this one little planet.

    1. Jim Haygood

      ‘Money is a contract, i.e.. each asset is backed by a debt.’

      That’s what they tell us. And it’s how we got pwned by a banking cartel.

      A gold or silver coin isn’t a contract, nor is it backed by debt (which in turn, is backed by a gov’t promise to ‘tax the children’). Coins have intrinsic value derived from past labor. They are stipulated in the constitution (I know, you’re laughing cynically, but I had to mention it).

      Now, 101 years on from the creation of the Federal Reserve, the bankster cartel not only has poisoned the economy, but the very culture. Unlettered French peasants were capable of understanding that John Law’s ‘contract money’ was a brazen fraud on the public, and ran him out of town. But Americans with years of formal education think Janet Yellen is some kind of oracle, rather than a counterfeiter picking their pockets.

      ‘Free your mind,’ as ol’ George Clinton used to say.

      1. Steven

        Maybe YOU should ‘free your mind’. Money IS a contract, a debt of the community on whose behalf it was issued to furnish wealth equal in value to that for which the money was (presumably) originally exchanged. Preserving this relationship is the only way money can ‘store value’. These days most people don’t even want to carry around (or ‘store’) paper money let alone gold. I read somewhere that 97% of all the gold ever mined still exists somewhere in some vault. The “intrinsic value” of a gold coin is what it costs to dig the gold out of the ground and mint it. My guess is that in a properly functioning economy gold would not be worth its “intrinsic value”. You can’t eat gold – though I believe the Incas tried to feed molten gold to Cortez’s(?) men after they exhibited a murderous hunger for it.

      2. Vatch

        Gold and silver don’t have intrinsic value. What they have is a commonly agreed upon value (or price range) that is far more persistent than the the agreed upon value (or price range) of fiat currencies. Gold and silver also have fairly persistent value as commodities that can be used in jewelry, electronics, and dentistry. But even that value is not intrinsic. If other commodities are discovered or created that are more useful in those applications, gold and silver will lose some of their value. The value of commodities is always dependent on their uses or on people’s opinions; the value is based on external factors. The value is not intrinsic.

        1. Steven

          Gold and silver … have is a commonly agreed upon value (or price range) that is far more persistent than the the agreed upon value (or price range) of fiat currencies. Gold and silver also have fairly persistent value as commodities that can be used in jewelry, electronics, and dentistry.

          I don’t see how you can believe that. Just look at the fluctuations in the price of gold over the last several years. My guess is they are wildly in excess of those for the king of fiat currencies – US dollars. And they are hardly “agreed upon value(s)”! The currency markets are just as rigged as the commodity markets, of course. And because of the Wall Street / bankster / government rampant money creation the dollar has depreciated to something like 3% of its value when the Fed was created (chartered to protect it I believe).

          But if gold were priced at its ‘use value’ (it has all but disappeared in dentistry and its use in electronics is declining as cheaper substitutes are found) that price would be far below the cost of digging it out of the ground, given its history as a ‘barbaric’ monetary metal.

          1. Vatch

            My two points are:

            1. Gold and silver do not have intrinsic value.
            2. The value (price) of gold (and silver) does not change nearly as much as the value (price) of fiat money. The extraordinary inflation of Weimar Germany, post WWII Hungary, and a few years ago, in Zimbabwe, prove that fiat money fluctuates to a vastly greater extent than gold or silver. This relative stability of gold and silver tricks some people into believing that gold and silver have intrinsic value, but they don’t have such value.

      3. John Merryman

        The point is that it’s an economic medium. Think voucher system. The basis of which is a group of people who wish to cooperate and need some form of accounting method. Now within groups of people you trust or want to be friends with, you will do favors for and it builds faith in the other person and that is a form of wealth. What money does is replace this communal bonding. While it is quite useful in getting large numbers of people to be willing to work together, when it reaches the point that people prefer these notes over cooperation with other people, then they become pawns to the financial system. Which allows that system to tax far more inter communal relations than they might otherwise.
        What we need to keep in mind is these notes are a communal tool, like roads and like roads, they function as a form of public utility. There was a time government was private enterprise, but there are few monarchists left. Eventually we will have to make this financial circulation system a public trust as well.
        The irony is that it is the bankers who are making this necessary.

        1. Steven

          A much better response! We will get farther by emphasizing those points on which we (should) all agree than debating irrelevant details like the best form of money. (The market has already settled that question – forms which best facilitate the creation and exchange of real wealth – NOT paper wealth.)

      4. MartyH


        A debt is only as good as the honor and resources of the debtor. Many debts are “empty promises” made with no real intent for repayment … an inconvenient fact of life, of course.

        1. Alejandro

          “A debt is only as good as the honor and resources of the debtor.”

          This has to be one of the most abused truisms in history, especially when there’s no reciprocity of honor from the creditor.
          Much credit, which is the flip-side of debt, has been extended with the knowledge and understanding that it cannot and will not be repaid, with the real intent of subjugating and confiscating…a pernicious fact of life of course.

          From “THE BUBBLE AND BEYOND” by Michael Hudson;
          “British speculators and sharpies eyed the rich farmlands of upstate New York and refined the practice of making loans to farmers against their crops. Their strategy was to call in loans at an inconvenient time (e.g., just before harvest), or simply to loan the farmer more than could realistically be repaid in the epoch’s low-surplus economy. They then would foreclose.”

  3. cnchal

    How does one actually walk away from an irredeemably corrupt system that one lives in?

    Even if you have no money in the stawk market, a collapse of it wouldn’t do one any good.

    I view the GFC (Great Financial Crime) as a planned crime by the banksters. It was all just too convenient, the timing right before an election, in a power vacuum, the demand by Hank Paulson for a $700 billion blank check from the government, the threat of tanks in the streets if that demand weren’t met, the AIG billions passed to Goldman Sachs. If we actually had capitalism for everyone, Goldman Sachs would be history and and be looked at as a historical curiosity of what happens when greed goes haywire.

    But no, these criminals are coddled by their own in power, and it is socialism and welfare for them, and cold hearted capitalism for the salt of the earth.

    The fact that Yellen had a seat at the policy table, right beside Larry “pollute the poor” Summers in the 90’s when Glass-Steagall was gutted, and is now Fed chairman, is as good a definition of corruption as any..

    1. JohnB

      You can ‘walk away’ by mobilizing resources in your local community, using decentralized currencies – but this will, of course, lead to your community being clamped down upon and your local currency shutdown, so that you can remain under neglectful control in the current monetary system.

      It seems to me though, to be one of the better ways to protest the current system: If your government and political/economic/monetary system are failing you, and failing to provide adequate employment and quality of living for you and your community, then eventually you’re going to have to stop relying upon them to fix the problem, and the community will need to begin utilizing idle resources by themselves.

      While it would obviously have its limitations, it seems a potent way of protesting the current system – which is guaranteed to lead to a confrontation between entire local communities and authorities, once it is clamped down on; maybe is a good template for generating future civil disobedience/unrest, against todays persistent economic mismanagement (by showing how it can be done right, instead, and creating a political cost for dismantling local community currencies).

      That’s one of the few meaningful ways I can think of trying to resolve these problems, that doesn’t involve waiting for political/economic reform which looks like it will never come – probably not in our lifetimes anyway.

      1. cnchal

        . . . then eventually you’re going to have to stop relying upon them to fix the problem . . .

        Before problems can be fixed, the political and finance class should stop making problems ever bigger.

        Here is a small example of political greed and corruption.

        In the recent Ontario election, the winning party, the Liberals, never mentioned privatizing Hydro One, the government owned electrical transmission system, but now it is announced that a significant portion is to be “privatized”, and the money from the sale is to be used to fund subway construction in Toronto.

        This is a government monopoly asset that should be kept in government hands, and selling it to privateers transfers that monopoly to them. Of course, the privateers haven’t got the money, so big borrowing takes place, the privateers will pay themselves ginormous salaries and dividends and even though we pay some of the highest electricity rates on the continent, the privateers will ride their monopoly to riches and raise rates ever higher.

        Who benefits? The banksters. The big construction companies. The privateers.

        Who loses. The people of Ontario, most of whom do not live in Toronto.

        It is the equivalent of selling a money generating asset, so you can get a popsicle, and no one would do it with their own assets.

        During the sale, all sorts of insiders will be feasting on “the deal”, like Liberal cronies, lawyers and bankster “consultants”, and the other parasites involved at high government levels.

        It is theft, typical of corrupt, dishonest politicians. Just look at what happened in Brazil, and the ever widening corruption scandal unfolding live.

    2. GlassHammer

      “Even if you have no money in the stawk market, a collapse of it wouldn’t do one any good.”

      The bottom 80% of Americans own less than 5% of the U.S. equity market.
      How much closer to “no money in the stock market” do we need to get?

      Heck, much of the activity in the stock market has become companies buying back their own stock.

      1. cnchal

        How would an 80% drop in the perceived value of publicly traded shares be of benefit to you, even though you might not own any?

        The Fed is still a demented demon in charge. Who knows what they will do.
        -10% interest rates? Remember, there are lobotomized economists that work there.

  4. Jeff

    Excellent article.

    Unfortunately, we have a lack of real leadership that will face the problems and expose the facts. We have turned into a quasi-fascist state.

  5. steelhead23

    I am a fan of Nomi’s, but this little take-down of Fed and global central bank policies doesn’t quite capture my true sentiments toward them. This does: (warning – NSFW)

    I encourage everyone to note the gap between Americans “average” income and the median. This gap is the fruit of the Fed’s labors – and it tempers my view that the large banks are the blood enemies of the American people and the financial system as a whole, the enemy of the global population. It is the Fed and global central banks that are spoon feeding them.

  6. susan the other

    Nomi is telling us what we already kinda know. So here we are. Now what do we do? Yesterday’s post on Varoufakis and Galbraith’s proposal for the EMU was the best thing I have read for a long time. Neither one of them claims to be Marxist, but V. comes close. And my reading of their 4 main points lead me straight to the conclusion that Marx himself couldn’t have designed a better piece of politics. Our present financial Fukushima is what capitalism does. We shouldn’t be so naive. But if: 1. the banking sector were federated (I read this as nationalized and federalized), and 2. a portion of public debt is mutually distributed and monetized, and 3. investment is institutionalized to maintain progress and the benefits of it are evenly distributed via a central authority, and 4. hunger and poverty is alleviated – then we wouldn’t get into this mess again. Would we?

  7. kevinearick

    all they have done is allow everyone to keep doing what they did yesterday, by eliminating any feedback signal that might suggest a change of course. Feudalism is a one-way ride. They rebooted with vast natural resources in America, as they have always rebooted. Now, they have run out of room globally, unfortunately, for those below them providing the pumping/pimping action.

    if debt rather than wealth is the basis of an ‘economy’, there is nothing to stop stupid from breeding stupid, which may, at times, be exactly what you want, depending upon your position in game theory, the FILO bankruptcy queue.

    the middle class has been eating cake for quite some time now, assuming it was nutrition, to the end of economic activity, more supply-side debt.

    exactly what was everyone expecting?

    privilege without responsibility, majority vote, is like asking your kids if they would rather have cookies or meatloaf for dinner. might be better off asking them if they would rather have meatloaf or do chores, and then have meatloaf.

    cut the anchor, jump the gap, and then see if anyone else is sufficiently motivated to go back to work.

    a talk show is not work, whether the anchor is male or female, black, white or pink, although it pays much better, in OPD, surprise.

  8. craazyman

    Is anybody else expecting to see Jesus coming in the clouds before this is over? It’ll be just like the Sistine Chapel ceiling when Jesus raises one arm and thousands and thousands of sinners plunge into hell with their arms and legs pumping furiously in the rushing air instinctively grasping for ground that’s gone. Forget rats and the Titanic and weight loss coaches. That’s like an afternoon with Netflix at home on the sofa with a bottle of wine and cheese and crackers! How bad will it get? I don’t think the English language has words for it. It’s hopeless, trying to explain the consequences of sin to a sinner. Only hell itself can speak with words a sinner understands. And a sinner can only hear when he or she (OK don’t fool yourselvses ladies, you can crackle and pop in full equality with the guys, there’s no discriminatiion in a place of justice where the wages of sin are paid out equally and solely on merit) stands in a realm where the sweet dalliances bestowed by fraud and feckless fortune no longer pipe their sweet seductive tunes into Godless ears and the only sounds are moans and bitter blasphemies cursing and spiting God. But this is not a scene from which we should cower in fear and terror. We should exalt in such a pageantry, glorifying the infinite reach of diviine justice. “Fiat justitia ruat caelum”. That’s guidance enough for a righteous man and a righteous woman.

  9. Jay M

    painted themselves into a corner, you have to ask–what kind of paint?
    rembrandt oils and pigment that mature over hundreds of years or the cheap white paint that covers all the recent Fed decisions?
    how long can they stay in the corner?

  10. RBHoughton

    I guess we all have experience of meetings. There’s people thinking about lunch or family affairs and one fellow who has done his homework, has an immutable view of what to do and thumps the table repeatedly.

    Meetings are a means of diffusing authority so one man’s wish appears to be the wish of many. We should give them up – they are demeaning of most attendees.

  11. sharonsj

    The uber rich are sweating just a little? Come on, you peasants, obviously you’re not doing something right. Get out there, buy more guns and ammo, start spouting Biblical passages from Revelations….

  12. Roland

    The money isn’t much of a “contract” when one party can expand the supply at whim and force all other parties to accept it.

    Of course, capitalism is full of these sorts of “contracts.”

    We can maintain the scare-quotes of bourgeois liberal conceit for as long as we like, I suppose, but when inequality is pronounced, liberalism is dead.

    I’m no big fan of the barbarous relics, but even when the distribution of the relical barbarities is lopsided, at least no one relicous party can arbitrarily expand the barbarism.

    In that way too, the barbarous relics at least possess one outstanding similarity to natural systems: they have plain physical limits.

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