Cerberus: Not a bit like Scooby Doo (image source: Deviant Art)
In Greek myth a monstrous hound named Cerberus, guarded the gates of Hades (Hell), not to keep intruders out but to prevent the dead from leaving.
Though he is not the same as John Steinbeck’s monster, that must grow or else it dies, and if it is not fed it cannot grow, Cerberus is similar. And he needs a lot of feeding. Though the myths are unclear about who is responsible for feeding Cerberus, central banks appear to have taken on the role of feeding our own modern version of Cerberus to keep all the troubles away.
Since the crash of 2008/2009 and throughout the ongoing depression, Cerberus has been chained to a wall, but he’s been fed Cerberus with ever lower rates and stimulus . Thus the central banks keep making him bigger and stronger and ever more aggressive. But worse, central bankers are running out of food to feed the monster.
The three heads of Cerberus are debt, deflation and demographics. Together they make a deadly combination that will result in a massive reset of asset prices.
Most of the finance industry and the political establishment have pretended for a long time that Cerberus can be contained by printing money and inflating asset values and have denied that he is a danger even as he has grown and become more destructive.
Some of the key economic arguments been hung on a fallacy that printing money and reducing interests rates to near zero earnings would stimulate spending and revive economies, that lower oil prices would be good for the consumer (which would trigger a burst of consumer spending) and that the FOMC would hike rates which would be a positive development as it would show confidence in the recovery, help bank earnings and trigger a consumer led, debt funded recovery. Simples.
None of these narratives came to fruition. Corporate stock earnings actually started to decline, the fall in oil prices became a disaster as energy dependent economies were brought to the brink of default and lower oil prices did not translate into increased consumer spending, rather they scared consumers into battening down the hatches, circling the wagons and hiding their cash in the mattress .
In short central banks have simply following the feeding pattern they have followed for years whenever Ceberus get hungry because he has to grow. Only this time the punters are not playing.