blog.milesfranklin.com / By Bill Holter / March 12th, 2013
The Bank of Japan announced over the weekend that they are considering buying derivatives to jump start their economy. Oh yes, that will do it! Print money (currency) lots and lots of it, purchase derivatives that are worthless and have zero chance of performing and book them on your balance sheet. Yes I know, taking dead derivatives off of bank balance sheets and replacing them with Yen, Dollars or what have you will “strengthen” the selling banks balance sheet by removing the Albatross but…. what about the central bank’s balance sheet?
Does this make any sense at all? Do the central banks believe that they are immune from the stench of derivatives? Do they believe that if THEY hold the derivatives, these “magical pieces of crap” will no longer smell bad? As I wrote months ago, “broke is broke” and hiding non performing assets “in the corner” doesn’t change anything, only “who” is holding the bag. The problem with this (and it’s already been done by purchasing non performing real estate loans) is that the central banks are the ISSUERS of the currencies themselves. These currencies (Dollars, Euros, Yen, Pounds etc.) live and breathe ONLY by the good graces of confidence and nothing more. The “nothing more” part being the fact that there is nothing real behind them.
By going into the derivatives market they are “betting” that the leverage of 100-1 will enable them to “pump” air into their economic balloon faster than it’s already leaving (deflating). This cannot work because all they are doing is destroying themselves. This is like an anorexic being told that they have to eat otherwise they will die… so they start gnawing on their own arm or leg. The central banks have obviously forgotten what their “product” is in their efforts to save their banking systems. Make no mistake, this is NOT about the economy it is about the banking systems. But what good is a “pristine” (no such thing in today’s world) bank or banking system if the issuer of the currency (the central bank) itself is a brain dead insolvent? What good is a healthy banking system if they “trade” in insolvent units?