This is the new model of nationalization: central banks
control the valuation of private-sector assets without actually having to own
them lock, stock and barrel.
As you no doubt know, central banks don't actually print money and
toss it out of helicopters; they create a digital liability and use this new
currency to buy assets such as bonds and stocks. Central
banks have found that they can take control of the stock and bond markets by
buying up as much as these markets as is necessary to force price and yield to
do the central banks' bidding.
Central
Banks Have Purchased $2 Trillion In Assets In 2017. This increases
their combined asset purchases above $15 trillion. A trillion here, a trillion
there, and pretty soon you're talking real money--especially if you add in
assets purchased by sovereign wealth funds, dark pools acting on behalf of
monetary authorities, etc.
Gordon Long and I discuss this stealth nationalization in
our latest video program, The Results of Financialization: "Nationalization" (35
min):
In the old model of nationalization, governments
expropriated/seized privately owned assets lock, stock and barrel. When
a central state nationalized an enterprise, it took total ownership of the
asset.
In today's globalized financial world, such crude expropriation is
avoided for two reasons:
1. The entire point of the dominant neoliberal / neofeudal
/neocolonial model is to maintain private ownership as a means of transferring
the wealth to the New Aristocracy, i.e. the financier class. Government
ownership certainly conveys benefits to the some are
more equal than others functionaries atop the state's
wealth-power pyramid, but it doesn't transfer the assets' income streams to
private hands.
2. It sends the wrong message: central banks want private
investors to do their bidding, i.e. to go along with the transfer of wealth and
income from the many to the few (the New Aristocracy). Maintaining the system
of private ownership enables the central banks to control the markets for these
assets at the modest cost of a few handfuls of the loot being distributed to
the small-fry owners of IRAs, 401K retirement accounts, etc.
In other words, what central banks want is not outright ownership,
which is costly and troublesome; what central banks want
is to control the markets on the cheap, with leveraged buying. In effect,
central banks have been able to manage assets worth $150 trillion with a mere
$15 trillion in well-timed (and loudly announced) asset purchases.
This is the new model of nationalization: central
banks control the valuation of private-sector assets without actually having to
own them lock, stock and barrel. Being the buyer of last
resort--the Plunge Protection Team that buys every dip in whatever size is
needed to stabilize valuations and then reverse the downturn into yet another
rally to new highs--has worked for nine long years.
This success has bred a complacent faith in the central bank
cargo-cult that there is no limit to central bank control of yields, valuations
and market sentiment.
But as I've described here many times, financialization is a box
canyon. Once you start down the path to the Dark Side of phantom
wealth created by commoditized debt and leverage (i.e. financialization), there's
no turning back to the real world.
The central bank aircraft is flying into a canyon with walls
2,000 feet high at an altitude of 300 feet. Everything seems to be going
splendidly until the central bank aircraft rounds a bend in the canyon and discovers
the canyon ends in a rock face 2,000 high.
In a desperate attempt to escape the box canyon, central banks
will ramp up their assets purchases of bonds to keep yields
near zero, and of stocks to keep the bubble valuations high enough to support
all the debt and leverage that's been piled on the underlying collateral of the
stock market: non-phantom net earnings.
Needless to say, attempting to control global markets via the
issuance of trillions in new currency and using that currency
to buy huge chunks of the stock and bond markets is an unprecedented
experiment.
To continue the box canyon analogy: central bankers and their
cargo-cult faithful are confident central banks are flying an F-18 with
afterburners on max; climbing 1,700 feet in a near-vertical ascent should be no
problem.
Those of us outside the cargo cult see the central bankers
flying a Wright Flyer: innovative in its time, but inadequate to the task of
controlling private-sector markets via stealth nationalization.
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