Sunday, October 20, 2019

The Global Economy is now a QE Addict

If it smells like QE, if it sounds like QE, if it looks like QE, it is QE. Trying to solve a debt problem by creating more debt. Economist Mohamed A. El-Erian calls it QE Lite. The Federal Government has grown so large that it is sucking the liquidity out of the system. They sell Treasuries, and to replace the liquidity sopped up, and the Fed has to go buy them back. It's that simple. This Ponzi scheme can go on for only so long. The longer it lasts, the harder the crash. The amount of theft going on behind the scenes in the last ten years has to be mind-blowing. Free money for the banks. Get back to work, Serfs! Pay those loans! Pay them taxes! Modern slaves are not in chains; they are in debt. Welcome to The Atlantis Report. Today the Primary Dealers needed and took another $73.5 billion in Fed overnight repos and $30.65 billion in 14-day term repos for a total of $104.5 billion in Temporary Open Market Operations. Meanwhile, $96.5 billion in repos expired. So the total Fed repos outstanding rose to a new record of $205.7 billion. It's QE forever, a permanent QE. The Fed will need to buy Treasuries of all maturities from the Primary Dealers from now till kingdom come. On top of that, it will continue to lend as much additional money via Temporary Open Market Operations, as the dealers need to absorb the rest of the new Treasury supply that the Fed isn't buying outright. This is the classic case of the snake eating its own tail. For all intents and purposes, J.P. Morgan Chase and the Federal Reserve Bank are the same people. They were printing money out of thin air. They don't have it. They've printed money into oblivion, and when they can't acquire physical gold, they're going to dump paper and go full bore into acquiring physical assets. The golden rule is, and always has been, the backup plan for the central banks and anyone who thinks otherwise is a fool. As The Power That Be have taken this path, it became evident that they were not going to relent and allow world finances to balance out and avoid a total catastrophe. Nope, they see the cliff ahead, and they are full speed ahead — Wiley Coyote they are not. #1. The global economy is now an addict, addicted to the financial heroin provided by the central banks (Central Banks) of the world. The economy "can't handle the truth" of the natural rate of interest, or apparently survive without constant jawboning, interventions, and machinations by said Central Banks. #2. There have been two asset bubbles that popped in the 21st century, so far: 1), The Dot Com Bubble. 2), The Housing Bubble 1.0. We're now experiencing "The Everything Bubble," which, like it's first two predecessors, is also doomed to crash and burn spectacularly. The Fed and Central Banks couldn't prevent it the first two times, and they won't this time either. Housing Bubble 2.0 is currently a "slow-motion train wreck," but you won't hear that or any other "negative" reporting that goes against the "everything is awesome!" narrative in the Mainstream Media cartel. The ginormous stock and corp. Bond bubbles are now also starting to rollover. It's not different this time. The Central Banks and the current plutocracy/crony capitalist system are effectively financial Socialism/Communism (for the few); a centrally planned command and control economy has always failed historically. Free (but regulated) markets + sound money have been proven historically to be successful for increasing the wealth and standard of living for most, but there are too few opportunities for graft, corruption (with the latter), and too many opportunities for the concentration of wealth and power in a few hands with the former. So here we are. It's no wonder why we have Brexit, Donald J Trump, a rise in general populism, and growing civil unrest. "Let them eat cake" only works for so long. We must make a choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both. Put simply, the extraordinary and experimental policies of quantitative easing and zero interest rates have not been "good" except in the myopic sense of encouraging a short-term burst of very bad choices and misallocations of capital. "The fact is that while yield-seeking speculation is a powerful force, it only operates when investors are actually inclined to speculate. See, creating a mountain of zero-interest money works only if safe, low-interest liquidity is viewed by investors as an inferior holding compared to riskier securities like stocks and long-term bonds. If investors are instead inclined toward risk-aversion, safe, low-interest liquidity is a desirable asset, not an inferior one, so creating more of the stuff does nothing to encourage speculation." The biggest point is no matter what they do; they can't fix the problem the way they keep trying. The problem will keep getting worse because people in the street have less and less money as time goes on, while Retirees pull more Dividends and keep dying. Less and Less, money at the top doesn't make a damn; it just burns right up. ECB, BOJ, FED, What a tangled web we weave. Stock buybacks, derivatives, ultra low-interest rates, and next to nothing savings rate. Underfunded public pensions, boomers retire, politics that don't make sense, and most importantly, that giant sucking sound coming from a mega taxed paycheck.

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