Central banks decisions

There are experts who argue that central banks change their monetary policy when they wish.

Very often in truth, Central Banks are FORCED by inevitable events, to change or deviate their monetary policy.

This is because, as I explained in another previous article, "the blanket is short".

Yesterday the Bank of England, RIGHTLY decided to intervene, AVOIDING A DISASTER.

If they had not sent a clear signal to speculators, signaling the restart of QE (Quantitative Easing) by purchasing their sovereign debts (Bonds), there would have been the risk of collapsing the British economy due to English pension funds that would have LOST EVERYTHING.

These English Pension Funds had in fact received a so called MARGIN CALL, thus risking to trigger a MASSIVE LIQUIDATION.

If the Bank Of England had not intervened, an explosive domino effect would have been triggered, of which few can really imagine the real ramifications and consequences.

Obviously, the BOE is applying a "moderate" QE for the moment, but this does not mean that it is not an important change.

An important sign. The truth is, the BOE had no other choice yesterday.

There was nothing else they could do. That was their limit of maneuver.

The BOE solved the situation just minutes before the destructions of "gears" which make the British economy work.

The Central Bank of China is also implementing various strategies to try to support the equity markets and the Yuan, which otherwise would be plunging.

The same dynamic also for the Japanese Central Bank, which has implemented similar measures, in addition to taking the historic decision NOT to raise rates.

(the only central bank in the world).

To better understand the situation in which central banks find themselves operating, we can imagine a balance resting on a pedestal.

If it is in balance, everything is fine.

If moderate excess weight is applied to one side, that's still fine.

But if a series of disproportionate objects with an unsustainable and immense weight are deposited on a single plate of the scales, there is the risk of breaking everything.

And in the markets, when certain gears break, disasters happen.

This metaphor, to reiterate that there are HIDDEN LIMITS within which it is possible to estimate the room for NON-intervention of central banks,

because beyond those limits, the Central Banks intervene.

They have to intervene!

Anyone who dreams of a scenario in which central banks never print or buy means dreaming, perhaps without knowing it, of a nightmare scenario.

A real ECONOMIC-FINANCIAL ARMAGEDDON, which would have immensely worse consequences than those of inflation seen so far.

Inflation which, moreover, is actually heavily determined by war and therefore by physical bottlenecks and obstacles, over which central banks have no power of influence. But that's not the subject of this article.

If central banks did NOT intervene beyond certain limits, such as if they had let those British pension funds fail yesterday, this would probably have led to the DEVASTATION OF ENTIRE PRODUCTION SECTORS.

Letting those Pension Funds liquidate would have made entire industries DISAPPEAR that would take DECADES to restart. A massacre of companies.

It would mean decreeing the LOSS OF WORK for millions of families.

There would be social unrest and riots.

Of course, investors would be a little poorer too, but all other people would be much, much worse off.

I don't think anyone of those who claim they don't like central bank support, really want this.

It would be a total ECONOMIC-FINANCIAL RESET.

In the end, it would only suit an handful of speculators who have bought some PUT options, or are short.

The rest of the population doesn't need this.