by Charles Hugh Smith
March 08, 2017
Eight years after the crisis of 2008-09, central banks are still
injecting $200 billion a month into the global financial system to
keep it from imploding.
If you want a central banker to choke on his croissant, read him
this quote from socio-historian Immanuel Wallerstein:
(have lost the ability) to control what happens to them in the
ongoing life of the modern world-system."
Stated another way, Wallerstein is asking: what do central banks no
"The question is how realistic is
this self-assessment of China?
There are two premises embedded
in China’s self-confidence, whose validity need to be
investigated. The first is that countries, or rather the
governments of states, can actually control what is happening to
them in the world-economy.
The second is that countries can
effectively contain popular discontent, whether by suppression
or by limited concessions to demands.
If this was ever even partially
true in the modern world-system, these assertions have become
very dubious in the structural crisis of the world capitalist
system in which we find ourselves today."
Central banks still claim absolute control over their currency,
interest rates, what's
legal/outlawed in their financial systems, and so on.
Wallerstein is suggesting that era
has ended and central banks are losing control of the value of
their currency, their
role in the global economy and the social discontent that is the
ripening harvest of central bank policies that have greatly
enriched the rich at the expense of everyone else.
I don't think
Wallerstein picked China out a hat.
Though every central bank is
experiencing the same erosion of control, China is visibly
losing control of the value of its currency, the yuan, and its
runaway debt burden, which has skyrocketed from less than 20
trillion RMB 13 years ago to over 160 trillion RMB.
This matters because instability in a nation's currency quickly
spreads to the economy and then to society:
a currency depreciates, the value of everyone's money declines,
i.e. the purchasing power of their money is diminished.
When a currency
is devalued, everyone holding that currency is instantly poorer.
become poorer through no fault of their own, they become angry
with the authorities who engineered the devaluation or let it
This leads to
the social discontent Wallerstein references.
of purchasing power occurs when wages stagnate while the price
of goods and services rises.
central banks control the erosion of wages' purchasing power?
There is little evidence they can.
As for a
central bank's control of its role in the global economy:
confident in China's ascent to global #1 power assume China will
remain the world's workshop at least until its domestic populace
can absorb all the goods it produces.
But it seems
increasingly evident China's role as the world's workshop is
under threat, and that it doesn't control the erosion of that
domestic populism is trending against
rising in China as the populace urbanizes
prices are rising
faster than wages
the potential for disruptive trade wars is
As for what's
recently, I've been engaged in some lively
online debates about the possibility of China banning
Most people in
the discussion reckon China (or any government with a high
degree of control of its populace) can shut down bitcoin with no
The threat of a severe penalty would be enough, or
so I'm told. I'm not so
what prohibiting alcohol did:
it created an entire economy
devoted to bypassing the authorities' restrictions on alcohol.
penalties were fairly severe, but threats didn't work when
If a nation's currency is losing purchasing power, threats are
unlikely to be effective. Indeed,
threatening the populace as they try to retain the purchasing
power of their capital/savings would be an act of desperation
born of a recognized loss of control.
Wallerstein is right:
banks - including
the Federal Reserve - are losing control of
the value of their currencies, their role in the global economy
and the social discontent that arises as central bank policies
negatively impact average citizens.
It's by no
means guaranteed that central banks will be able to maintain
their death-grip on interest rates, either.
Eight years after
the crisis of 2008-09, central banks are still
injecting $200 billion a month into the global financial system
to keep it from imploding.
returns on their "investment" is diminishing rapidly, and
they're losing control of everything that matters...
BoE - Bank
BoJ - Bank
European Central Bank