(2012 in Review) - '..desperate politicians and extraordinarily accommodative central bankers..'
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(2012 in Review) - '..desperate politicians and extraordinarily accommodative central bankers..'

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'Globally, increasingly desperate politicians and extraordinarily accommodative central bankers make a most perilous combination.'

'When Total U.S. Mortgage Credit expanded $1.4 TN in 2005, there was no doubt that the Mortgage Finance Bubble had inflated to dangerous extremes. That did not, however, stop a fateful $1.0 TN of subprime mortgage CDO (collateralized Debt Obligations) issuance in 2006. In 2012, global central banks and governments gave the great global Credit Bubble an additional lease on life. Markets responded, not uncharacteristically, with only greater speculative excess. Speculative markets responded by only diverging further from fragile fundamentals.

Those market operators most adept at betting on policymaking enjoyed yet another year of stellar returns – along with more incredible growth in AUM (assets under management). The cautious fell only further (and further) behind. The hedge fund community lived to play another day, although with each passing year it seems to become more a story of the giants growing more gigantic. There were notable prosecutions of insider trading, yet never in history has inside knowledge of policymaker intentions provided such incredible opportunities for riches. At the Federal Reserve, policies accomplished the objective of spurring the lowly saver further into risky securities. Overall, central banks succeeded in bolstering vulnerable global securities markets. Meanwhile, it became increasingly clear throughout 2012 that years of easy money, myriad (ongoing) policy mistakes and attendant misdirected resources have taken quite a toll on the underlying structures of economies throughout Europe, the U.S., Japan, China and around the globe.

In response to deepening structural issues and in the face of ongoing global imbalances, central bankers further ratcheted up their runaway monetary experiment. Seemingly putting an exclamation point on an extraordinary year, December saw the Fed announce $85bn of monthly quantitative easing. Numbed by such incredible monetary largesse, the marketplace can be forgiven for downplaying U.S. “fiscal cliff” issues and economic vulnerabilities. In Japan, a new government was elected with a mandate to essentially “do whatever it takes” with fiscal and monetary policies to spur growth and inflation. With over two decades having passed since the bursting of their Bubble, Japan’s search for solutions has turned desperate. Globally, increasingly desperate politicians and extraordinarily accommodative central bankers make a most perilous combination.

The years pass by quickly. It remains a privilege to chronicle history’s greatest Credit Bubble on a weekly basis. I have a rather demanding “day job,” but I’ll continue to do my best to put together my weekly Bulletins. I only write on Fridays, and I never really know how much time I’ll have available. The quality will vary, and there will continue to be those tired and grumpy Fridays to contend with. But I love the analysis and I’m honored that you would take the time to read my work – warts and all. Thank you.'

- Doug Noland, 2012 in Review, December 28, 2012


Context

..Risky Bets of Central Banks

'..Draghi's money. It covers up problems..' - inflationism .. intervention, obfuscation, rationalization and degradation..'

Mises - Money and Credit - '..the recession was a problem of under-saving, and over-consumption..'