Tetlom, central bankers and governments are shifting the burden of trillions of dollars worth of debt obligations from reckless creditors onto innocent savers and hapless taxpayers. Such short-sighted and desperate policy may have temporarily prevented a series of big institutional disasters, but the price we are yet to pay is a colossal public disaster.
It’s too late for banks because the value of their collateral is falling so default is looming. Governments expect taxpayers to foot the bill but people have had enough. Central banks are not “printing money”, as we’re told to believe, they are buying bonds. Their remedy for too much debt is even more debt. So they are not fixing the problem, they are merely creating a bigger deflation. The idea that central bankers are in control is a myth. Eventually they will be exposed as impotent - over coming months and years.
But given the current near-record low level of volatility (as measured by the VIX 'fear' index) a deep complacency persists in markets that central bankers will do whatever necessary to prop up financial markets and rescue the economy. This widespread faith in the power of central bankers is about to be sorely tested.
