How the Central Banks Are Creating Chaos

Central bankers present an image of authority from on high. They like to present themselves as prudent protectors of us mere civilians.

Yet they are the biggest gunslingers in the world.

They are the cause of much chaos and suffering throughout the world.

They are usually unaccountable to anyone yet have more power than anybody but heads of states. At least many heads of state are elected.

Here’s the problem.

Money makes the world go ‘round. Money is the one thing that unifies a country. We all use it.

So the central bankers control the single most important thing in the economy.

But, throughout history, bankers have run monetary policy in a crazy way.

Let’s take a couple of recent examples.

In the mid-2000’s, the Fed boosted money supply and dropped interest rates below where they should have been. In effect, they were saying, “Want to borrow money? Here’s lots of it at a super low price!” This led directly to the housing boom which was one of the biggest bubbles in American history!

They then panicked and hiked interest rates dramatically in 2007 thus popping the bubble they created and caused the 2008 Great Recession.

There were other causes of the Great Recession but the boom could not have happened without the Fed making a massive mistake in monetary policy and then making another mistake in popping it.

Chalk up massive suffering for Americans and others due to gunslingers at the Fed.

We now have several central banks, notably the European Central Bank and the Bank of Japan, embarking on massive economic distortion scheme of negative interest rate policy or NIRP. These central banks are charging people to lend to them! Yes, reread that last sentence! It’s astounding!

But this massive distortion is once again causing tremendous suffering around the globe.

Let me just mention one disaster that is sweeping the world.

The world is getting older particularly in the developed world. These older people rely on their pensions for their income.

Traditionally, pension funds would look at the ages of their pensioners and come up with an expected amount of money they will need each year to meet their financial obligations. They would then usually buy bonds that matched those liabilities. This system has only worked since the beginning of pensions with NO problems.

Along come the gunslingers.

Now, many bond yields are negative which means that the pension funds can’t find bonds from major developed countries that match their liabilities. So they really have only two choices:

1. Cut what the pensioners get or
2. Invest in riskier assets.

They are doing both.

Pensioners around the world are seeing their income squeezed. This is the major reason why we are seeing “retirees” working at Walmart into their 70’s.

They can’t afford to retire! And this is cutting out jobs that are normally for younger people.

Pension fund managers are investing in riskier assets like junk bonds, emerging market bonds, and dividend paying stocks to make up for the lack of yield or even negative yield from safe government bonds.

This means that they will suffering at least occasionally when those riskier assets go belly up or suffer from bear markets. Who pays for the higher risk?

You and I.

The central banks said that the Great Recession was caused by too much debt and too much risk. So their solutions? Borrow more and take more risk.

The central bankers are leading us right back to a higher cliff than we were in 2008! And we will pay for it.


Courtney Smith is Chairman of He is the author of 10 books on investing. He speaks to thousands of people every year. He is the only man in history to have managed a top ranked mutual fund and hedge fund.

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