The Silver Age of the Central Banker
February 19, 2016·0 comments·monetary policy
Global trade volumes are falling worldwide, something that only happens during recessions. Yet markets keep betting on more monetary stimulus, and policymakers insist on coordination. The structural foundations of an economy are cracking, but the narrative holding them together hasn't shifted. What happens when the foundation gives way faster than the story can adapt?
- Global trade volumes have been declining since late 2014 in every major economy simultaneously. This is the pattern you see in recessions, not normal slowdowns. It's almost never mentioned in mainstream financial reporting.
- Governments facing shrinking trade pies face unbearable domestic political pressure to protect their own economies. Currency devaluation becomes the weapon of choice, and modern governments know exactly how effective it is at keeping factories running.
- Central banks coordinated beautifully when global trade was expanding and everyone could win together.That game only works when the payoffs reward mutual cooperation. Those payoffs have now inverted.
- Once defection becomes more profitable than cooperation, every central bank sees the trap and abandons coordination anyway. The shift from one equilibrium to another is mathematically irreversible without another crisis forcing everyone back into survival mode.
- We've moved from the Golden Age of central bank omnipotence into the Silver Age of competitive devaluation. The question isn't whether this ends badly. It's how much damage happens before the system resets.
The Why of Epsilon Theory
- Make more informed decisions as an investor and citizen.
- See through the nudges of Big Politics and Big Media.
- Become a better consumer of news.
- Maintain your autonomy of mind in a swarm of narratives.
- Join a community of more than 100,000 truth-seekers.
Unlock instant access to this and hundreds of other evergreen essays that explore the world of narrative through hard science and human wisdom.
Looking for Deeper Insights?
Unlock exclusive market intelligence, trade ideas, and member-only events tailored for investment professionals and active investors with Perscient Pro.
VISIT PRO
DISCLOSURES
This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.
