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If you haven't been paying attention, you could be forgiven for not understanding just how important tomorrow is for the markets.
Tomorrow is day two of two-day meetings being held by the Bank of Japan's monetary committee and the Federal Reserve's Federal Open Market Committee (FOMC).
Right now, it's not what central bankers with god complexes say that matters – even though, yes, they move markets with what they say and even what they don't say.
It's what they've done and what's going to happen – no matter what they say – that matters now.
Forget the gobbledygook, cryptic blathering spewing down from Mt. Olympus.
Here's what going to happen tomorrow – and beyond…
Three Things You Need to Know About Central Banks
Before we dive in, there are three facts you probably don't know – but you absolutely need to know – about central banks.
Number one: All central banks, in all their iterations, whether they're a branch of government, quasi-independent institutions, or private corporations whose shareholders are big banks and elitist bankers, which is exactly what America's Federal Reserve System is, are all in bed with their governments.
They couldn't exist otherwise. They're given the power to manipulate interest rates, mostly through "open market operations," where they go into financial markets (without any capital to speak of) and buy and sell trillions of dollars' worth of government bills, notes, and bonds to move interest rates up and down, for two reasons:
- They can buy all the government-issued debt they're asked to buy so governments can run unlimited deficits without immediately adversely impacting interest rates;
- They can be blamed by politicians if there's no economic growth or high inflation due to too much government borrowing, relieving politicians of the blame for high unemployment or high interest rates.
Number two: All central banks, after glad-handing their political masters, serve their country's big banks, providing liquidity when needed and bailing them out, if they can, at least up to the point that governments have to step in with bailout money they get from central banks. Central banks are big bank, backstopping, bailout machines.
Number three: There is no need for any central bank, anywhere. They only exist to be manipulated by governments, to bail out "too big to fail" (TBTF) banks, and to enrich bankster oligarchs, their capitalist cronies, and political officers all feeding at the same dirty trough.
With that established, I want to take a close look at the Bank of Japan. In terms of modern-day manipulations, BOJ has been at it the longest.
Believe It or Not, the BOJ Is Worse Than the Fed
After the BOJ's excessive easy money policies inflated Japanese real estate, which was used as collateral in the 1980s for margin loans to buy stocks, which rose exponentially and were themselves used as collateral with banks for mortgages to buy skyrocketing properties, all ended in the horrific crashing of Japan's stock markets in 1990 and real estate markets in 1991, the BOJ stepped in. And it never left.
Thirty-five years later, the BOJ's still manipulating rates, still pushing on a string, still trying to underpin stocks and real estate, still trying to turn deflationary realities into some kind of magical 2% inflationary panacea. It's not working.
The BOJ's pursuit of inflation by artificially manipulating interest rates lower, into negative territory as of this past January, by buying 38% of all Japanese government-issued debt in the world, by buying corporate debt, and by buying stocks, hasn't worked.
It's not that the BOJ can't see that their low-interest-rate policies haven't worked. It's not that the BOJ can't see that Japan's exporting juggernaut has been slam-dunked by rising emerging markets exporters, especially China. It's not that the BOJ can't see that productivity declines and demographic realities are working against Japan's economy.
The BOJ sees all that. None of it matters to them because it's just doing what it does, what central bankers with god complexes and their cheerleading state governments want them to do, step into the void and manipulate rates and financial markets.
Why? Because regardless of what's working for the economy, or the population, there are financial asset renters, bankers, and politicians who benefit by the manipulation.
The same story holds true for the run-up in real estate prices in the United States and the stock market crash. The Federal Reserve's low-interest-rate policies inflated bubbles that popped.
Just like in Japan, big banks were saved by a central bank and have all gotten bigger.
The haves have gotten wealthier and the middle class and lower socio-economic classes have tragically fallen backwards down a very slippery slope.
Savers have been punished. Retirees and pensioners have been devastated. And the capital they'd amassed, which fed bank lending and capital formation throughout free markets, has been replaced by central bank, master-of-the-universe funny money.
About the Author
Shah Gilani is Chief Financial Strategist for Money Map Press and boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker. The work he did laid the foundation for what would later become the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk and established that company's "listed" and OTC trading desks. Shah founded a second hedge fund in 1999, which he ran until 2003. Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see. On top of the free newsletter, as editor of The 10X Trader, Money Map Report and Straight Line Profits, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade using a little-known strategy. Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on FOX Business' "Varney & Co."