Naomi Prins, in her latest book titled “Collusion: How Central Bankers Rigged The World“, dissects the aftermath of the 2008 financial crisis and how the quantitative easing policy by leading economies turbocharged the influence of central bankers and triggered a shift in the world order.
The former Wall Street insider and author of “All the Presidents’ Bankers: The Hidden Alliances that Drive American Power“, shows how central banks and international institutions like the International Monetary Fund overstepped their traditional mandates by directing the flow of a huge amount of artificially created money without any checks and balances.
This has further created an open door for private corporations to manipulate markets and create unprecedented asset bubbles, she said.
Listen to GHOGH with Jamarlin Martin | Episode 68: Jamarlin Martin
Jamarlin talks about the recent backlash against LeBron James for not speaking up for Joshua Wong and the violent Hong Kong protestors.
Here are 10 takeaways from Prins’ latest book, “Collusion: How Central Bankers Rigged The World”.
Sources: Talks at Google, Publisher Weekly, Kirkus Reviews, Truthdig
The U.S. Federal Reserve started artificially creating money – what Prins calls “money conjuring” – to support too-big-to-fail banking conglomerates after the housing bubble burst. The Federal Reserve called this quantitative easing (QE), which was basically rewarding bankers for their misbehavior.
Once the Fed started throwing easy money to bankers, other central bankers from leading economies joined in and started creating more money for their economies. Some, like the European Central Bank (ECB) and Bank of Japan (BoJ), are still practicing some form of QE. These central bankers may continue pumping artificial money into the system indefinitely.
Artificial money injected into major economies has increased from $500 billion in 2008 to more than $15 trillion in the global north alone. Prins says that this has moved the level of failure higher than it was before.
“QE has created an extra level of artificial capital that has made debt accelerate and stock prices go up artificially so that the next time there is a crisis you’re falling from a much higher height.”
The level of artificial money being created by central banks across the world is going up in different countries for different reasons and the end is not in sight. Or is it? This has created unstable capital and the big risk that the next collapse will be catastrophic as no one will be able to bail out anyone else. Things can go wrong very quickly if this artificial money is taken away.
After pumping additional dollars into its economy, the U.S. Federal Reserve realized what this would do to the value of the dollar. This would have made the world reserve currency weaker and central bankers would ditch the dollar for gold (which is actually happening now). To avoid this, the Fed exported the concept of quantitative easing to some of its main trade partners in Europe, Asia, and South America.
While Brazil cut its interest rates in line with the U.S. policy of quantitative easing, Mexico, which had just come out of the Tequilla Crisis, hiked its rates instead. Mexican central bank Governor Guillermo Ortiz Martínez then criticized the QE policy. His contract was not extended in 2009. His replacement, Agustín Carstens Carstens, adopted quantitative easing before resigning in 2017 after he began criticizing QE. This shows the high risk of the end game for QE.
The artificially-created money released into economies has created an asset bubble as it is used by banks to buy stocks, bonds and other assets to keep them afloat and increase their money supply. When the asset bubble pops, it could bring down banks and markets like a house of cards, Prins argues.
QE has also raised income inequalities and created an elitist class hell-bent on preserving their dominance, which could lead to a bigger collapse than that of the 2008 crisis.
While there has been an inflation of financial assets, there has not been inflation of real prices, so real inflation has maintained a semblance of normality.
Despite its volatility, cryptocurrency could offer a way out. The International Monetary Fund and European Central Bank are looking into developing cryptocurrencies that are regulated by central banks with a fixed supply like gold. This, Prins says, could be a solution but it is still not yet clear how it would work out in real economies.
