By JC Collins
When the financial crisis hit seven years ago, the world was not prepared to implement the level of structural reforms which would have been required to correct the imbalances in the international monetary and financial system. In place of structural reforms the central banks of the world implemented policies of monetary stimulus.
If there is one thing that can sum up what has happened over the last seven years, it’s that monetary stimulus policies were used, both to delay massive deflation which is now taking place, and prepare the way for the structural reforms which would be required to correct the imbalances in the system. Now that script is about to flip and monetary policies will begin to be normalized, or more appropriately, be adjusted to accommodate the forthcoming structural reforms.
This is the one area where most analysts and commentators are unable to recognize the fault in their conclusions. Monetary stimulus was never meant to go on forever, and those who implemented the policies were very well aware of the fact that low interest rates and QE could not be used indefinitely.
Monetary stimulus was not a Band-Aid, it was a bridge.
Where almost all analysts and commentators do get it correct is in stating that ending monetary stimulus will result in increased volatility. But what isn’t recognized is that this volatility is now wanted, as it will serve a very specific purpose in the Hegelian Dialectic script which we have reviewed here through countless posts and discussions.
There is no coincidence in the fact that the September 15th IMF deadline on the 2010 Quota and Governance Reforms will be followed with the FMOC meetings and press conference on September 16th and 17th. Other notable meetings in the month of September include the G20 and UN Summit in the second half of the month.
The recent announcements from the IMF and the Bank for International Settlements on central bank stimulus policy is being followed by warnings from other monetary and financial institutions. The meme on normalizing monetary policy is beginning to pick up steam and the beginnings of the incremental interest rate increases will likely start sooner rather than later.
Low interest rates are now openly being acknowledged as causing increased risk in regards to financial stability. The long-term damage of the continuous boom and bust cycles is prevalent in the growth reduction which the world is experiencing. The misallocation of resources which stems from the imbalances in the existing monetary framework has caused extreme waste, while creating opportunities for the expansion of rent seeking.
The current monetary framework is unable to address the fundamental imbalances which are leading to volatility and instability. Contrary to the illusion of divisions within this mandate, be assured that all countries are participating in the restructuring of the international monetary framework and financial system. The monetary stimulus policies were well plotted and agreed upon by the central bank of every country.
The script was supported by the BIS and IMF, as well as the Fed, and other central banks. Now we are witnessing the transition in discussions and announcements around the damages which monetary stimulus has caused, and continues to cause.
The normalization of policy will lead to short-term volatility, as many expect. But it will serve to introduce and manufacture a macro supra-sovereign level of acceptance for the alternative monetary framework which will be rolled out in increments. Each segment and component of the new framework will be introduced as a solution to specific points of volatility.
The first open announcements from the international institutions, such as the G20, UN, IMF, BIS, and others, regarding the new framework solutions will begin in short order, as the volatility continues to deepen worldwide.
We have previously covered the effects an increase in interest rates in the US will have on the currencies of the emerging economies. This first step of policy normalization will broaden the exchange rate instability and begin the open moves which will begin to establish the new exchange rate regime which will govern the multilateral framework.
Many have often accused me of either ignoring the fundamentals of economics, or outright not understanding them. That is because I am not writing about economics, in so much as I’m writing about the structural changes to the international monetary framework and financial system.
The economics which have governed the past are no longer the operating fundamentals upon which the current and future adjustments will be based. Economic theory and fundamentals have been used throughout the 20th Century to create a functional operating system which will govern the monetary and financial system of the future.
All agree that markets are manipulated and controlled. All agree that the fundamentals, as we have been conditioned to accept, are operating as intended. The future cannot be accurately predicted based on an economic theory which is no longer being used. The void between supply and demand will be engineered and macroprudential policies will determine the level of participation and opportunity which exists in specific markets and regions.
This is the one area where many have disagreed with me. For the record, I do not support what is happening, I have merely been reporting on and presenting my own unique analysis on the transition. The understanding and acceptance of the structural changes which are happening, and how they have been engineered, has afforded me the ability to more accurately predict what will happen in the coming weeks and months.
The often quoted statement from Carroll Quigley in Tragedy and Hope about an invisible banking power which controls things from behind the scenes is hard to ignore or explain away. Yet so many refuse to accept that the current policies of monetary stimulus are anything but ignorance and stupidity. The quotes on the banking powers from the past would strongly suggest, and support, the conclusion that today’s policies are in fact socioeconomic engineering of the highest order.
This engineering has been covered here on POM through hundreds of analytical posts. I have done my best to explain and help others understand both the Hegelian Dialectic component and the multilateral transition component of what is happening. But with so many others twisting every fact, and manufacturing emotion based and misleading pieces, the swell of ignorance has all but hidden the reality of this transition from the broader public. Those that manage to guide their way through the mine field of mainstream media are quick to fall into the trap of the alternative media and the fabricated conclusions which distract and condition even further away from the reality of the socioeconomic engineering.
Those that have stayed with me over the last few years are rewarded by seeing the actual problem/reaction/solution unfold as we have reviewed. Those who are new to POM have a virtual library of information to read and catch up on the greatest socioeconomic engineering the world has ever experienced.
The script of monetary stimulus solution is being switched with the monetary solution is bad script. The normalization of monetary policy, and ensuing volatility, will give the policy makers and central banks the excuse to implement the solution which can now only be found in the realization of a multilateral monetary framework. No other solutions will be presented as viable. – JC