[kitchencabinetforum] CENTRAL BANKS PLAY MISTY FOR US!

Joerg Asmussen of ECB muses there have been three great inventions since the beginning of time: fire, the wheel, and central banking! Central banking has become Asmussen's business since January this year, but he feels he is getting his fair share of the other two as well, as being behind the steering wheel of the ECB during this crisis turned out to be in the line of fire!

Play misty for me! Central banks play a confidence game with us. A confidence game is defined as an attempt to defraud a person or group by gaining their confidence. The victim is known as the mark, the trickster is called a confidence man, and any accomplices are known as shills. Confidence men exploit human characteristics such as greed, vanity, honesty, compassion, credulity, and naivete. The common factor is that the mark relies on the good faith of the confidence man.

Asmussen points out communication is an essential and powerful policy tool of central banks. This is because the physical product of a modern central bank is something with little intrinsic worth. The euros in our pockets are, after all, only pieces of printed paper. Their value lies in the shared conviction that fiat money can be used as a means of exchange, as a unit of account and above all as a store of value. All money is a matter of belief. This belief stands and falls with the credibility and trustworthiness of the central bank. This, in turn, rests on its words and deeds.

The stupid financial transaction tax is a euthanasia pill for financial markets. If Eurozone adopts this stupid tax, all financial transactions of the continent will move to London and New York. The most popular euthanasia substance on the market is Nembutal, and the most disgusting euthanasia of financial markets is the financial transaction tax. I prefer Nembutal to the financial transaction tax!

Bewildered Greece, in its infinite stupidity, already applies a financial transactions tax on the sale of Greek listed shares at a rate of 0.2%. This stupid tax, which burdens the seller of the listed shares, is directly withheld upon each settlement of the transaction and paid by the Stock Exchange Depository to the tax service. This stupid tax also applies on the sale of foreign listed shares by Greek tax payers, i.e. Greek resident individuals, Greek enterprises, and Greek branches of foreign entities.

Asmussen notes that maintaining trust is an enormous responsibility. Consistent communication and policy action can create confidence and popular support. By contrast, miscommunication and policy mistakes can create excessive volatility in markets. In extreme cases, the currency itself may be at risk. And with it the value of the peoples' savings.

VAT is the major culprit of European depression, the #1 source of misery. VAT is the cacothanasia of Fourth Reich! Vatdodging is heroism! If you are a real patriot, you should revolt against VAT, buying products online from companies that evade VAT. Remember, your government is your worst enemy! The freakish government of Greece stole my computer and my life! The largest online retailers offer top quality products at deep discounts without VAT. Only stupid consumers pay VAT! Some fantastic VAT-free offers are on http://venitism.blogspot.com

Central bank's mission to instill confidence in us about the economy while simultaneously instilling confidence in us about the abilities of the central bank itself. Central bankers are almost always publically bullish and hardly ever publically bearish about the economy. The economy always looks good, if not great. If there are some problems, don't worry, the Fed will come to the rescue with truckloads of money, lower interest rates, and easy credit. If things were to get worse, which they won't, the Fed would be able to respond with monetary weapons of mass stimulation.

It was not always obvious that central banks and communication should be mentioned in the same sentence. Central banks used to be secretive places. They used to surprise the markets with their policy moves. They used a language that made the oracle of Delphi appear positively accessible: Alan Greenspan is on record as saying: If I seem unduly clear to you, you must have misunderstood what I said!

Those days are over. Central bank communication has become a very dynamic discipline. By deliberately steering expectations in financial markets with their communication, central banks let the markets do part of the job of transmitting their policy signals.

Central bankers are the people who said that there was no housing bubble, that there was no danger of financial crisis, and then that a financial crisis would not impact the real economy. These are the same people who said they needed a multitrillion dollar bailout of the financial industry, or we would get severe trouble in the economy. They got their bailout, and we got the severe trouble anyways. It is time to bring this game, this confidence game, to an end. http://venitism.blogspot.com

Asmussen says the crisis was a game-changer in the communication of central banks, and of economic policy makers more generally. In this world of unknown unknowns, and rapid shifts market sentiment, our task has become much more complex. The new challenges can be captured by the following three themes, or fault lines: market communication versus political communication; transmitting the message versus facing the discourse; arguing with counterfactuals and navigating the short versus the long term.

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Central bank's artificial creation of credit is the culprit in the business cycle. As the boom turns into bust, the economy tries to readjust itself into a configuration that conforms to consumer preferences. That is why it is so essential for government to stay entirely out of the adjustment process, because arbitrary government behavior can only delay this necessary and healthy process.

Asmussen notes that navigating between markets and politics has shifted the goalposts of the ECB's communication. We are facing up to this new environment and its challenges. We are engaging more. We are explaining more. The changed environment, including the spread of new media, might actually be an opportunity in this respect.

Central banks must be abolished. Money needs to be defined by the government, perhaps as a quantity of gold as in the past, a basket of commodities, or something else in order to make payments and collect taxes. Once money is defined, the private sector is perfectly capable of creating the necessary quantity of money, as it did before the advent of central banks.

Asmussen declares ECB has gained stature during this crisis. The people and the markets look to ECB for solutions. But there should be no illusion that ECB can single-handedly ensure a plain sailing for our economies and the markets. There are limits of what we can do, and what we know. Central banks do not have divine wisdom. They try to do the best analysis they can and must be prepared to stand or fall by the quality of that analysis.

Hail! A sensitive issue cannot be fully explained in a post, but only in a speech, in that magic eyeball to eyeball contact, baring my soul, and declaring truths that cause shock and awe. That's why I look forward to the invitation of your organization to speak at your conference. venitis@gmail.com