The Corbett Report

As all eyes turn to this week’s Federal Open Market Committee meeting for an answer to the will they / won’t they Fed rate hike question, we face another stark reminder of how the global economy is increasingly at the whim of the central bankers with their hands on the money spigot. The would-be “Masters of the (Phoney, Manipulated) Universe” known as the Federal Reserve board have the power to send the global economy into a tailspin by hiking rates, causing a giant unwind of the almost-never-mentioned dollar carry trade in emerging economies. Or they can waffle again, delay the decision, and keep markets in the precarious limbo they’ve been since the end of the QE3 party and the removal of the punch bowl. They could even, as some suggest, concede their utter failure to even understand let alone implement an easing-based “recovery” and try again with QE4.

But wait, there’s a bold new truth-teller on the horizon. One that’s willing to talk about the insanity of this central bank-manipulated economy: “Financial markets have worryingly come to depend on central banks’ every word and deed,” says the oracle. Is it a bird? Is it a plane? No, it’s Claudio Borio, chief economist of the Bank for International Settlements!

And the plainspoken, obvious truths about the global economy’s precarious position don’t stop there. We live, Borio noted in a press conference late last week, in “a world in which debt levels are too high, productivity growth too weak and financial risks too threatening.” The market mayhem of August (“remarkable” gyrations of oil price, “sharp price moves with little trading” in FX markets, “dislocations” of equities markets) “were not “isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines.”

You would be forgiven for thinking that such a screed came from some alternative market commentator, someone far outside the mainstream and likely to be branded as a fearmongering conspiraloon by the economic cheerleaders at CNBC. But the fact that it came from the Bank for International Settlements should actually not be surprising. As Ambrose Evans-Pritchard noted in his article on the BIS’ latest report: “The venerable BIS – the so-called ‘bank of central bankers’ – was the only global body to warn repeatedly and loudly before the Lehman crisis that the system was becoming dangerously unstable.”

Read more