Central bankers around the world have continued in their vain and experimental policy actions in recent week and months. We have often commented on this late, great phenomenon of the office of central banker. Why?

The current world-wide fixation and veneration of central banking is one of the greatest delusions and manias of all time. Their actions are becoming increasingly desperate and are causing growing tremors and dislocations. (See EVR issues of February, April and June 2013 for additional perspectives.) It is a sad spectacle.

Central bankers are now popularly considered to be the most powerful people in the world. They are seen as the magi of prosperity…the magical healers of all economic and financial problems…the monetary priests that can apparently issue indulgences for all past economic sins. Their actions are catalysts for major wealth transfers within societies. And, amazingly, they are not even elected officials. Yet, these individuals can bring national and global economies to complete ruin. Just why is so much trust put into these officials?

It is certainly not because of their successful track records. Far from it. All the same, it is not surprising that economists have attracted the faith and hopes of the masses. Mankind has been only too willing to be deluded and to accept great lies many times before. There are countless examples of this being the case. Thousands of years ago, the Bible had already noted that those who promote themselves as wise and knowing apart from God are fools that invariably lead people and societies astray.

In this Creation, the majority is rarely right. Just because the majority may believe in evolution or in the big bang theory has no bearing whatsoever on the truth. “For wide is the gate and broad is the road that leads to destruction, and many enter through it” (Matthew 7:13). Moreover, “For the wisdom of this world is foolishness in God’s sight” (1 Corinthians 3:19).

But back to the wise of this age…the central banker. The latest magic wand has been the policy of “forward guidance”. Mark Carney, former governor of the Canadian central bank, recently introduced this new practice policy as one of his first acts as head of the Central Bank of England.

Quoting Martin Wolf, writing in the Financial Times (July 5, 2013), “Mark Carney has been welcomed to London as if he were the messiah. George Osborne, the chancellor of the exchequer, refers to him as ‘the outstanding central banker of his generation’”. (FT July 5, 2013).

Shortly thereafter, Mario Draghi, head of the European Central Bank also indicated that he would adopt the same practice. The U.S. Federal Reserve has already been doing so for quite some time following the Global Financial Crisis.

What is forward guidance? It is simply this: Rather than keeping financial markets in suspense as to what their next policy action will be (i.e. raising administered interest rates, open market activities, etc.), central bankers plainly tell markets what they will do ahead of time.

In some instances, central banks are now signalling their actions two years ahead and further. Is this harmful? Yes, it is. Not necessarily as a specific policy but as part of the slavish veneration that is given to central bankers overall. Their every word and gesture is studied intensely for any indication of a possible policy change.

What is wrong with all of this? Quite a bit:

· Firstly, the types of policies that are today being considered as wise and smart policy are in fact immoral according to the time-worn standards. Furthermore, the track record speaks conclusively on this question. The macroeconomics community is more confused than the field of psychoanalytics. It is just as unscientific.

· Policy prescriptions that have been pursued (and, crucially, new incredibly-unorthodox policies currently considered) amount to theft. Introducing arbitrary policies that can have the effect of crushing one demographic (for, example, retirees, as interest rates have been pushed to the lowest levels in many decades) and, for example, favoring the banking industry (that itself has witnessed much criminality in recent years) is unconscionable.

· Central bankers who have pursued policies that have caused citizenry to lose faith in the value of their money and the future have destroyed entire societies…having been the hand-maiden to broad moral collapse. This happened in Germany in the 1920s and 1930s. Dishonest money cannot be disconnected from overall moral conditions.

Most countries specifically task their central banks to manage inflation, maintain full employment, and to limit the prospect of financial crisis. How do they do all this? Well, they have not done so. In fact, this year central bankers have unleashed great instabilities. Firstly, Shinzo Abe (the new Japanese prime minister) appointed a new lap-dog head of the Bank of Japan, Kuroda. He unleashed a tsunami of fraudulent money. The yen plunged as much as 40% against the euro in a period of less than 5 months. Recently, Ben Bernanke, head of America’s central bank shook markets as he began to talk of “tapering”.

The actions of the world’s major central banks have gone past the point of no return. You must understand this. The recent reactions to the “tapering” comments illustrate this reality in spades. In the space of less than two months, the entire banking system in the U.S. has lost all its unrealized gains on its holdings of government bonds. You can imagine how offside will be the balance sheets of the major central banks which are now incredibly leveraged, operating on a very small sliver of equity. It really amounts to a giant confidence scheme.

There is no painless road back. Therefore, we expect much greater monetary lunacies to yet be inflicted upon the world. Outright Permanent Money Finance (OPMF) will likely follow at some point. We explained this policy in the last issue of EVR. Economists who are promoting this prescription are thought to be “brilliant.” Really? Even a child can look through these plans and recognize them to be fraudulent and immensely unjust.

Finally, is America in the hands of a better central banker (Ben Bernanke) than Japan or Europe? That seems to be the prevailing opinion. Few know this story.

Back in 1996 a certain academic economist advised Japan how to get out of their predicament of near-economic depression and deflation. Short-term interest rates were compressed to near-zero (for more than a decade following); government spending went up by over 50%; and government debt more than doubled (both measured relative to the size of the economy). The result?

Between 1996 and 2006, industrial production growth (smoothed) fell from 2% to zero; inflation declined from 1% to -0.3%; and the bond market far outperformed the stock market (which remained about 40% below the 1996 level). Who was that academic? None other than Ben Bernanke. “Can the blind lead the blind? Will they not both fall into a pit?” (Luke 6:39).

World money systems are becoming increasingly dysfunctional and broken. Most concerning of all is the continuing slide into monetary immorality. This term, of course, has no traction amongst most policymakers and in spheres of monetary economics. No matter…regular readers of this newsletter will still adhere to the ideas of absolute truth and a difference between right and wrong, not the “end justifies the means” nor the supremacy of expediency.

Readers may ask, if things are so broken, then why have stock markets been soaring to new highs in past months? To that we would answer that financial market trends have very little relationship to true prosperity. Financial markets have utterly no role in determining what is right and true. That would be entirely dependent on the morality of its human participants and those that control or influence financial markets and economies.

The fact that financial markets have been soaring is due to massive monetary manipulation, economic imbalances and the willing gamesmanship of those that influence and/or control capital movements. While financial markets (and lately, even real estate markets) are again dangerously inflating — largely flamed by the all-time unprecedented and global money manipulations of central banks and other financial institutions — household income growth is stagnant (even as corporate earnings in the U.S. are almost 2.5 times the norm relative to the size of the economy), youth unemployment is at peak levels, labor force participation is sinking, and wealth distribution is becoming ever more concentrated. This is a foundation that will eventually lead to social breakdown.

Just how much further can central banks push such arbitrary and inflated conditions? While there can be no doubt that current policies will lead to ultimate collapse, further and increased manipulation is still very possible. In fact, we would even say this is likely. How so? Because trends in human values toward relativism and materialism continue to accelerate. Indeed, more monetary manipulation will continue to deceive and furthermore, requires experts in greed without conscience.

No doubt there do exist some sensible central bankers. However, they are in the small minority and are considered to be unimaginative. One of these is Jens Weidman, President of the German Bundesbank, who recently commented: “A point that I think is important to make—perhaps less for my central bank colleagues than for finance ministers—is that the medication monetary policy makers administer only cures the symptoms and that it comes with side-effects and risk.” He is correct. That said, we doubt that he will survive much longer in his current position. With Japan on a “kamikaze” warpath of reducing the value of its currency (down some 40% against the euro in a matter of months) it will not take long for Germany’s export economy to be lamed. Then, very few will have any appetite for austerity policies. The rampant recklessness of unorthodox monetary policies will be seen to be wise and brilliant.

One illustration of such so-called brilliance was on display recently at the INET conference in Hong Kong.

There, celebrated policymaker and claimed scholar, Lord Adair Turner gave a keynote presentation on a monetary policy prescription that he called Overt Permanent Money Finance or OPMF. It sounded impressive and learned but in reality it was something very simple…a new and massive form of theft. In short, he validated a new policy frontier for central bank chicanery and sleight-of-hand. We would consider Mr. Adair’s recent speech as the “coming out” of OPMF.

INET stands for Institute for New Economic Thinking. It was founded and funded in large part by George Soros in 2009. Its stated objective, according to the INET website, is to “accelerate the development of new economic thinking that can lead to solutions for the great challenges of the 21st century.” While still relatively new, it is gaining much influence and is attracting high-profile economists such as Lord Adair Turner and others to its ranks.

George Soros, in an interview at this recent INET conference, expressed enthusiasm for OPMF. In fact, much more than that. He said something to the effect that, in his consideration, he believed Lord Adair Turner (advocate of OPMF) to be one of the most brilliant economists alive today.

Just what is OPMF? It is this: To have central banks directly finance the budget deficits of governments. In other words, central banks would buy new issue bonds directly from a government’s treasury in exchange for newly issued money. The central banks get the bonds; the government gets the money in its bank account to spend.

In short, brilliant. If government debt is never contemplated to be paid back to the central bank, wouldn’t it be more correct to say that the central bank gave a free gift of money to the Treasury Department? We would say yes. This opens the door to great abuse…and much more malinvestment and economic distortions.

Real wealth cannot be created out of thin air. What these new OPMF policies must therefore produce is large shifts in relative wealth between different economic agents and households. Wealth distribution skews will continue to widen, with the 1% amassing even more relative wealth. (Wealth distribution is already at its most imbalanced in at least 8 decades in the U.S. not to mention similar trends in other countries.) This is just one of the structural problems.

While Mr. Adair and other erstwhile and mutually-congratulatory money alchemists will no doubt continue to reinforce the notion that their ideas are new and brilliant, they are in fact not. The underlying premise — buried under mile-high layers of academic-speak, theoretical obfuscation, references to other revered economists and so on — is a fascist wealth transfer. That’s harsh language. Even harsher (and more accurate still), is the word theft. When massive amounts of wealth are being transferred by effect of the policies of unelected central bank officials (not by way of labour or savings nor a properly-empowered congress) that is what it is…theft.

If you’ve been puzzled by the inexplicable strength of stock markets in recent months, despite a clearly decelerating economic ebb and wilting earnings, then the growing expectation of OPMF could be the missing link.

As OPMF gains further influence in policy circles, we speculate that financial markets (both bonds and stocks…the latter certainly so) will initially be (perhaps already are) in a celebratory mode. In fact, it may yet be a full-blown punch bowl party. Intoxicants such as free money and free government funding will do that. But only for a time. The flaws that we have cited will, in time, come to the fore.

Finally, while we see such smug, morality-free prescriptions being proposed to wide and celebrated approval, on the other hand we also see confusion and trepidation. Said Lorenzo Bini Smaghi recently, former member of the executive board of the European Central Bank: “We don’t fully understand what is happening in advanced economies.” Furthermore, José Viñals, IMF Financial Stability head, forebodingly commented that “Put simply, we are in uncharted territory.” Indeed we are.