Central Banks ‘Bullying’: Investor Implications

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Central Banks ‘Bullying’: Investor Implications
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Central Banks Bullying: Investor Implications by Axel Merk, Merk Investments

“Bullying” by the Fed, ECB, Bank of England and Bank of Japan has been in place for up to six years, forcing not-so-mighty central banks, savers and investors to deal with the consequences. Understanding the dynamics may help investors to navigate what’s ahead.

First, let’s get one thing straight: it matters little what you; we; or anyone in the blogosphere thinks policy makers should do. We are bystanders that have to deal with the consequences of their actions. The cheapest action undertaken by policy makers is to coerce the markets with verbiage. Their words matter, as they control the printing presses. Having said this, if the words are not followed by action, at some point, the markets may call their bluff.

Not all policy makers are created equal. Some grab the headlines simply because their leaders have access to a microphone, such as Christine Lagarde of the IMF. But the IMF only sets policies for countries that are receiving funds from the IMF aid program. For all practical matters, we would like to encourage anyone to tune out when Madame Lagarde tells the Fed or the ECB what to do. Similarly, the OECD just doled out some advice for the ECB, but – frankly – their input is rather irrelevant. Just as irrelevant as yours or mine would be.

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Let’s move a step up from the supra-national organizations to small countries. Now we are firmly in bullying victim territory. When large central banks unleash their printing presses, what are smaller countries to do? We have all been told never to blame the victim, but cou