Practical analysis for investment professionals
23 May 2013

Kyle Bass: Central Bankers Are Building Potemkin Villages to Deceive Us

Posted In: Economics

According to legend, Russian minister Grigory Potemkin erected fake settlements along the banks of the Dnieper River in order to fool Empress Catherine II during her visit to Crimea in 1787. According to Kyle Bass, managing director of Hayman Capital, central banks around the world today have erected their own Potemkin villages to deceive the public into thinking that the world’s economic problems are solved. They aren’t.

In a recent conversation with Bass, a prominent central banker noted that a central bank pursuing aggressive monetary policy can have some positive effect on economic growth. However, the simultaneous engagement in expansionary monetary policy by many central banks yields almost no benefit to economic growth. To illustrate this point, Bass showed a chart of the balance sheet growth of the four major central banks: US Federal Reserve, Bank of Japan (BOJ), European Central Bank (ECB), and People’s Bank of China. In aggregate, the balance sheets of the big four central banks grew from $3 trillion in 2008 to over $13 trillion today. Moreover, many central banks are printing new money on an unlimited basis, maintaining zero interest rates, and simply shifting the day of reckoning out into the future. Nowhere is this more true than in Japan.

Read more on the 66th CFA Institute Annual Conference blog

About the Author(s)
Ron Rimkus, CFA

Ron Rimkus, CFA, was Director of Economics & Alternative Assets at CFA Institute, where he wrote about economics, monetary policy, currencies, global macro, behavioral finance, fixed income and alternative investments, such as gold and bitcoin (among other things). Previously, he served as SVP and Director of Large-cap Equity Products for BB&T Asset Management, where he led a team of research analysts, 300 regional portfolio managers, client service specialists, and marketing staff. He also served as a Senior Vice President and Lead Portfolio Manager of large-cap equity products at Mesirow Financial. Rimkus earned a BA degree in economics from Brown University and his MBA from the Anderson School of Management at UCLA. Topical Expertise: Alternative Investments · Economics

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