A Look At Projected Global Central Bank Balance Sheets

Tyler Durden's picture

One aspect of a globalized economy that some are forgetting is that Ben Bernanke's fiefdom is merely one of many across the world. In addition to the Fed, there are 3 more key central banks out there: the BoE, the ECB and the BoJ (not to mention the PBoC). And while we already know that the Fed has no plan to stop printing money for the foreseeable future (and nobody has accounted for the massive revenue shortfall that the US will experience courtesy of an extension of the Bush taxcuts - likely to add an additional $500 billion in bond issuance requirements over the next year) and will not raise rates in this lifetime, here is what other central banks are planning on doing as of now. It appears that in the developed world, only the Fed and England are the monetarily irresponsible transgressors: the BOJ and the ECB are the two central banks that so far have demonstrated remarkable restraint when it comes to devaluing their currency, and destroying their middle class. This is visualized on the chart below from SocGen. The question then becomes how long before the last two rational entities throw in the towel and join the printing fray. With the EUR now trading over $1.4 consistently, a level where it will stay absent some monetary action out of Trichet (and hammer European exports), we believe that both central banks will soon be forced to push the max overdrive button on their respective printers.

While the chart above is on a relative indexed basis, it will be interesting to quantify the new liquidity rush coming from the BoE, and soon, from the BOJ and the ECB.

Here is the additional narrative from SocGen's Aneta Markowska:

What next? Over the coming week, we have a full schedule of Fed speakers from both ends of the hawk-dove spectrum. The Fed's decision is pretty clear in terms of operational details, but what the markets will want to hear is how the Fed expects the new policy to impact the economy. How will the Fed gauge and assess whether the policy is working? We are among those sceptical about the effectiveness of QE2 beyond its ability to anchor inflation expectations from below.

The country has spoken... and it is sick of government spending. With QE2 out of the way, policy watching will now shift to the fiscal front. Following a republican victory in the mid-term elections, fiscal policy is bound to undergo significant changes. The Bush tax cuts are increasingly likely to be extended for all income levels, but after that we see thin prospects for additional fiscal stimulus. The country has spoken, and policy will respond. Republicans are already promising budget cuts to the tune of $100 bn and the Democrats will likely become more sensitive to the issue of fiscal responsibility. Where Republicans and Democrats could potentially agree is on tax breaks for businesses.

To the last point: the incremental debt required to fill the tax break hole is precisely where the UST will come up and fill the void with additional issuance... Which the Fed will promptly gobble up as part of QE2 (and Lite) and set the stage for QE3 which will be priced into the market some time in H2 2011, at an expected size of several trillion.



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Careless Whisper's picture

wonder what these guys are thinking



JLee2027's picture

Chi-coms? Who cares. They don't.

101 years and counting's picture

the ECB doesnt need to print one more EUR.  Actually, do 100% the opposite.  Instead of printing EUR to buy garbage debt from Portugal, Ireland, Spain, Greece, etc.....let one of them default.  EUR would print $1.30 within a week.



Rick64's picture

Default means the bankers don't get paid, this is not an option for the elite.

Fraud-Esq's picture

Bingo. It's easy to plan an egalitarian society on paper. Who will protect their rich and their middle classes. That's what we're watching play out. So far, only the EU has one politician speaking for the debtors, on a limited basis.  

Vampyroteuthis infernalis's picture

The wealthy won't be hurt that bad if they are prepared for a default and laws are written to favor them. This is the European future.

Hustler Elite's picture

It will also be very interesting to see what emerging market central banks do in response to the developed world's coordinated monetary policies.

Especially given Brazil's latest remarks before the G20.

Superdrol's picture

2nd place isn't bad.  We still have a chance at being #1.

Ace Ventura's picture

"...(and nobody has accounted for the massive revenue shortfall that the US will experience courtesy of an extension of the Bush taxcuts - likely to add an additional $500 billion in bond issuance requirements over the next year)..."

This comes dangerously close to parroting the false notion that 'tax cuts cost money', or that tax cuts must be 'paid for'. A tax cut is not equivalent to Uncle Sugar cutting a check to Citizen X. It's merely a reduction in the level of government theft he is continually subjected to, thus allowing Citizen X to keep a bit more of HIS money.

Instead of adding another $500 billion in bond issuance, the obvious solution is to CUT SPENDING by $500 billion.




JLee2027's picture

Has to be done by force...not an armed revolt but system failure. These guys are never giving up otherwise.

CrashisOptimistic's picture

I confess that I do not understand a mechanism.

These are armslength transactions.  Bonds have 1000 dollars par value.  Anything above that is premium.

If you're Turbotax Timmy and you have heard that one of your CUSTOMERS has committed to buying $600 billion of your products . . . why aren't you raising the price to the moon?

Why isn't Timmy selling Ben 20 bonds at $30 billion each?  Hold the $1000 par value and add 30 billion of premium.  Why isn't this done?

winks's picture

It goes like this:

Geithner: I need to raise $150 billion a month to fund new spending needs and to fund debt that is maturing. However, there is only demand in the market for $30 billion or so without causing rates to rise substantially. Can you help me out Ben?

Bernanke: Of course Tim, we have a limited capacity to buy your treasuries and simply keep them on our balance sheet. I understand the need to keep rates unchanged.

  Bernanke is not an idiot and is simply doing as he is told. The problem is the U.S. is a spending machine and doesn't generate enough cash flow to meet its needs. Once the FED's capacity to play this game runs out, it will then force a reduction in spending and an increase in taxes. Until that day comes .......

Biggvs's picture

So you're saying the cash that the Fed gives to bond sellers (they'll be buying off the run in the market, if I understand) will then be spent buying Geithner's new paper rather than stocks? Because general opinion seems to be that the stock market is going to get that cash.

winks's picture

In normal times the primary dealer banks buy the treasuries from Treasury and they would likely hold them and earn a spread or sell them to a third party. (No new money created). In this case, The FED is the "third party" and simply prints money to buy the treasuries from the primary dealers. Thus the monetary base has gone up, the primary dealers have converted their treasuries to cash and the treasuries have moved from the Treasury to the FED. The so called "stock market" play comes from the cash the primary dealers (the big banks) now have to invest in stocks.

Vampyroteuthis infernalis's picture

Winks, you are right. The only way that our gov't to keep its doors open without drastic change is print money for investors to turn around and dump into new treasuries. It is the way that Japan has kept their gov't going. Taxpayers are forced to pay into the public pension fund which turns around and buys newly issued Japanese debt. The BoJ turns around and buys the debt off of the pension fund and the cycle goes on. Welcome to the US' future.

Superdrol's picture

 I need to raise $150 billion a month to fund new spending needs and to fund debt that is maturing We also too have a 3 billion kickback fee to Goldman Sachs. However, there is only demand in the market for $30 billion or so without causing rates to rise substantially. Can you help me out Ben?

centerline's picture

Come on BOJ and ECB, you don't want to be uncool.  Do like Ben, eat the shrooms.  It's the all the rave.  Everyone is doing it.

Djirk's picture

The "Wealth Effect" reminds me of 1984 Double Speak.

Create more money (aka wealth), but you can buy less with the money you create. With the inflation people have to spend more driving GDP.Whoo hoo, no recession!

We are wealthier right?

In the 50's a single income was fine for a family, now people struggle on double incomes.....we sure are wealthier! Thanks Uncle Ben.


toros's picture

Road map to the S&P thanks.

Djirk's picture

What is up with the BoE? That is one big spike from the little speed bump island off the continent? Shadow banking coverage? 

TheMonetaryRed's picture

The BOJ are a bunch of idiots. They're the ones who should be monetizing like there's no tomorrow - because for them there really may not be.

ThePhysicist's picture

The government doesn't tax too little, it spends too much.

Cut entitlement spending and make the Bush tax cuts permanent.


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Grand Supercycle's picture

My long term indicators continue to warn of USD strength and EURO weakness.