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Pimco's Observations As The US "Reaches The Keynesian Endpoint" - The QE2 Ponzi Scheme Is "Nothing But A Profit Illusion"
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Once again, it is the world's biggest bond manager which either is really tempting fate by telling the truth in an increasingly more aggressive manner day after day, or is engaging in the most acute case of reverse psychology ever seen, coming out with the most critical opinion of the Fed's actions on the verge of the Fed's historic first press conference. And this one is truly a stunner, far more real than anything even Bill Gross has said in the past: "Just as Charles Ponzi needed donuts to turn back a suspicious crowd
of investors, the Fed needs “donuts” in order to fill the bellies of
the literally millions of investors worldwide who worry about the
alarmingly large U.S. budget deficit and the impact that the U.S. debt
dilemma could have on their Treasury holdings...Their
collective buying has created what we believe to be a profit illusion
with many investors mistakenly believing they can continuously reap
profits from perpetually falling bond yields and rising bond prices,
just as they have had opportunity to do over the past 30 years, amid the
great secular bull market for Treasuries and the bond market more
generally...For many reasons, this “duration tailwind” for Treasuries can’t
last, particularly because the United States has reached the Keynesian
Endpoint, where the last balance sheet has been tapped."
Must read
Summary of "The End of QEII: It’s Time to Make the Donuts"
- ?With quantitative easing the Federal Reserve has in essence picked the pockets of Treasury bond investors throughout the world.
- Ultimately, the U.S. must own up to its past sins and let the deleveraging process play itself out.
- The U.S. must invest in its people, its land, and its
infrastructure, as well as promote free trade, to achieve economic
growth rates fast enough to justify consumption levels previously
supported by debt.
In 1920 the Boston Post contacted Clarence Barron, the founder of
Barron’s, to investigate a man who claimed to be racking up remarkable
gains for investors in an arbitrage involving the purchase and sale of
postal-reply coupons. Charles Ponzi, the developer of the scheme, sought
to convince investors that differentials in inflation rates between
countries had created an opportunity for investors to purchase the
postal-reply coupons on the cheap in one country and redeem them in the
United States, an arbitrage that Ponzi said would enable investors to
grow their money by several fold if they invested with him.
In fact, there were indeed differences between the prices of
postal-reply coupons postage bought in foreign countries and their
redemption value in the United States. But there were also substantial
barriers preventing any actual arbitrage, including enormous logistical
challenges having to redeem the coupons, which were of low
denominational value. Ponzi nonetheless started and then perpetuated the
scheme.
Barron sought to expose Ponzi’s scheme, noting in articles that
eventually brought the Post a Pulitzer Prize, that to support the
investments Ponzi had supposedly made there would have to be 160 million
postal-reply coupons in circulation. There were only 27,000 of them.
These and other questions led an angry and suspicious crowd to gather
outside of Ponzi’s Securities Exchange Company, which was located in
Boston on School Street.
eventually brought the Post a Pulitzer Prize, that to support the
investments Ponzi had supposedly made there would have to be 160 million
postal-reply coupons in circulation. There were only 27,000 of them.
These and other questions led an angry and suspicious crowd to gather
outside of Ponzi’s Securities Exchange Company, which was located in
Boston on School Street.
Ponzi, who was famous for his deceptions, convinced many in the
angry crowd to stay calm and leave their money with him, enticing them
with little more than his charm, donuts and coffee. It wasn’t the first
time that investors would be misled by the potential for future profits
and simple trappings, but donuts and coffee? Really? Is it this easy to
get investors to part with their money? In many cases yes,
unfortunately.
angry crowd to stay calm and leave their money with him, enticing them
with little more than his charm, donuts and coffee. It wasn’t the first
time that investors would be misled by the potential for future profits
and simple trappings, but donuts and coffee? Really? Is it this easy to
get investors to part with their money? In many cases yes,
unfortunately.
From Donuts to QEI and QEII: The New Profit Illusion
Just as Charles Ponzi needed donuts to turn back a suspicious crowd
of investors, the Fed needs “donuts” in order to fill the bellies of
the literally millions of investors worldwide who worry about the
alarmingly large U.S. budget deficit and the impact that the U.S. debt
dilemma could have on their Treasury holdings. Investors are no doubt
worried they may have bought into an unsustainable scheme: the creation
of a scourge of debt so large that the Fed itself has had to purchase
the debt to keep the game going.
of investors, the Fed needs “donuts” in order to fill the bellies of
the literally millions of investors worldwide who worry about the
alarmingly large U.S. budget deficit and the impact that the U.S. debt
dilemma could have on their Treasury holdings. Investors are no doubt
worried they may have bought into an unsustainable scheme: the creation
of a scourge of debt so large that the Fed itself has had to purchase
the debt to keep the game going.
All that the Fed has had to do thus far to keep the game going is
press the “on” button to its virtual printing press, crediting the
account of the U.S. Treasury. In the process, the Fed has kept the
demand for U.S. Treasuries high, perhaps deceptively so, attracting with
its redolence many classes of buyers, including households, banks,
pension funds, insurance companies and foreign investors. Their
collective buying has created what we believe to be a profit illusion
with many investors mistakenly believing they can continuously reap
profits from perpetually falling bond yields and rising bond prices,
just as they have had opportunity to do over the past 30 years, amid the
great secular bull market for Treasuries and the bond market more
generally.
press the “on” button to its virtual printing press, crediting the
account of the U.S. Treasury. In the process, the Fed has kept the
demand for U.S. Treasuries high, perhaps deceptively so, attracting with
its redolence many classes of buyers, including households, banks,
pension funds, insurance companies and foreign investors. Their
collective buying has created what we believe to be a profit illusion
with many investors mistakenly believing they can continuously reap
profits from perpetually falling bond yields and rising bond prices,
just as they have had opportunity to do over the past 30 years, amid the
great secular bull market for Treasuries and the bond market more
generally.
For many reasons, this “duration tailwind” for Treasuries can’t
last, particularly because the United States has reached the Keynesian
Endpoint, where the last balance sheet has been tapped. In addition,
with inflation expectations rising in the context of low levels of
initial jobless claims, and with Federal Reserve officials themselves
expressing reluctance to go beyond Quantitative Easing (QE) II, the
Fed’s Treasury buying is expected to end in June, leaving others to
carry the Treasury’s heavy load.
last, particularly because the United States has reached the Keynesian
Endpoint, where the last balance sheet has been tapped. In addition,
with inflation expectations rising in the context of low levels of
initial jobless claims, and with Federal Reserve officials themselves
expressing reluctance to go beyond Quantitative Easing (QE) II, the
Fed’s Treasury buying is expected to end in June, leaving others to
carry the Treasury’s heavy load.
The Federal Reserve’s colossal bond purchases therefore will
likely, to the chagrin of millions of unsuspecting Treasury bond
investors, be one of the markers for the latter stages of the bull
market for Treasuries. For now, however, the Fed’s purchases have the
sweet aroma of freshly baked jelly donuts and many a Treasury bond
investor has been drawn to their savory, sugary, scrumptious taste.
likely, to the chagrin of millions of unsuspecting Treasury bond
investors, be one of the markers for the latter stages of the bull
market for Treasuries. For now, however, the Fed’s purchases have the
sweet aroma of freshly baked jelly donuts and many a Treasury bond
investor has been drawn to their savory, sugary, scrumptious taste.
What they should instead smell is the whiff of rotten eggs. But
this is easily hidden with a nose pin, which the Fed through QEII places
on the noses of each investor, with the goal of creating perpetual
serendipitous moments that in the eyes of investors transform the rotten
stench into something far more delectable. Ultimately, however, the
stench of the Federal Reserve’s bond purchases will seep into the
nostrils of investors all around the world when it becomes glaringly
obvious to them that the Fed can’t possibly continue as the Treasury’s
main source of demand.
this is easily hidden with a nose pin, which the Fed through QEII places
on the noses of each investor, with the goal of creating perpetual
serendipitous moments that in the eyes of investors transform the rotten
stench into something far more delectable. Ultimately, however, the
stench of the Federal Reserve’s bond purchases will seep into the
nostrils of investors all around the world when it becomes glaringly
obvious to them that the Fed can’t possibly continue as the Treasury’s
main source of demand.
Treasury investors will also realize that not only has QE
suppressed the rates they earn on their Treasury holdings, QE promotes
financial and economic conditions that hurt Treasury bond holders,
primarily because it boosts economic growth and inflation, resulting in
confiscation of the skimpy Treasury yields they earn. Foreign investors
have the added discomfort of a decline in the foreign-exchange value of
the U.S. dollar. To top it off, Treasury investors face the potential
for capital losses for having bought into the Fed’s scheme at prices
inflated by QE, sort of like playing a game of hot potato and getting
stuck with the potato when the Fed abruptly leaves the game.
suppressed the rates they earn on their Treasury holdings, QE promotes
financial and economic conditions that hurt Treasury bond holders,
primarily because it boosts economic growth and inflation, resulting in
confiscation of the skimpy Treasury yields they earn. Foreign investors
have the added discomfort of a decline in the foreign-exchange value of
the U.S. dollar. To top it off, Treasury investors face the potential
for capital losses for having bought into the Fed’s scheme at prices
inflated by QE, sort of like playing a game of hot potato and getting
stuck with the potato when the Fed abruptly leaves the game.
House of Pain
With QEI and QEII the Federal Reserve has in essence picked the
pockets of Treasury bond investors throughout the world. To be sure, QE
fattened the bellies of many Treasury investors, owing to substantial
price gains.
The problem, however, is that the Fed essentially
robbed Peter to pay Paul by pushing yields below inflation and by
undermining the value of the U.S. dollar. Peter was the unsuspecting
investor in Treasury securities drawn into the Fed’s scheme by the
allure of ever-rising Treasury prices; Paul was everyone else invested
in everything else.
pockets of Treasury bond investors throughout the world. To be sure, QE
fattened the bellies of many Treasury investors, owing to substantial
price gains.
The problem, however, is that the Fed essentially
robbed Peter to pay Paul by pushing yields below inflation and by
undermining the value of the U.S. dollar. Peter was the unsuspecting
investor in Treasury securities drawn into the Fed’s scheme by the
allure of ever-rising Treasury prices; Paul was everyone else invested
in everything else.
The movement into this “everything else” that was prompted by QEI
and QEII can be visualized by looking at concentric circles, with the
riskiest assets at the perimeter of the circles. The migration toward
the perimeter was encouraged through not only a decrease in term premia
for longer-term bonds resulting from the Fed’s large-scale asset
purchases, but also by the Fed’s zero interest rate policy, or ZIRP. It
created a “house of pain,” an investment climate in the money market so
punishing that it drove investors to seek refuge in other assets. No
wonder $1 trillion of money has flowed out of money market funds over
the past 2 ½ years.
and QEII can be visualized by looking at concentric circles, with the
riskiest assets at the perimeter of the circles. The migration toward
the perimeter was encouraged through not only a decrease in term premia
for longer-term bonds resulting from the Fed’s large-scale asset
purchases, but also by the Fed’s zero interest rate policy, or ZIRP. It
created a “house of pain,” an investment climate in the money market so
punishing that it drove investors to seek refuge in other assets. No
wonder $1 trillion of money has flowed out of money market funds over
the past 2 ½ years.
It’s Time to Make the Donuts
QEI and QEII were necessary solutions at a time when the U.S.
financial system was on the brink, but they are unsustainable means of
funding the U.S. government. Ultimately, the U.S. must own up to its
past sins and let the deleveraging process play itself out. It can’t
pretend that previous levels of demand for goods and services can be
restored simply by turning on the Fed’s printing press.
financial system was on the brink, but they are unsustainable means of
funding the U.S. government. Ultimately, the U.S. must own up to its
past sins and let the deleveraging process play itself out. It can’t
pretend that previous levels of demand for goods and services can be
restored simply by turning on the Fed’s printing press.
The United States instead must recognize that only by increasing
investment in its people, its land, and its infrastructure, as well as
promoting free trade, can it achieve economic growth rates fast enough
to justify consumption levels previously supported by a wing and a
prayer – by debt.
investment in its people, its land, and its infrastructure, as well as
promoting free trade, can it achieve economic growth rates fast enough
to justify consumption levels previously supported by a wing and a
prayer – by debt.
For the Federal Reserve and the U.S. Treasury, it is time to make
the donuts. There is a crowd standing outside and, although there is no
wrongdoing to make them as angry as the crowd that stood outside of
Charles Ponzi’s office before he was busted, they are just as anxious,
and it is going to take a lot of convincing to get them to show up at
the next Treasury auction and the one after that, and the one after
that, and….
the donuts. There is a crowd standing outside and, although there is no
wrongdoing to make them as angry as the crowd that stood outside of
Charles Ponzi’s office before he was busted, they are just as anxious,
and it is going to take a lot of convincing to get them to show up at
the next Treasury auction and the one after that, and the one after
that, and….
Across the Pond and Around the World
Now, let’s turn to Ben Emons for a walk through the evolution of
QE, its goals, its effects, and its upcoming end, before turning to
other PIMCO colleagues for discussions on central banking in Europe and
the emerging markets. Comments from PIMCO experts throughout the world
are a regular feature of the Global Central Bank Focus.
QE, its goals, its effects, and its upcoming end, before turning to
other PIMCO colleagues for discussions on central banking in Europe and
the emerging markets. Comments from PIMCO experts throughout the world
are a regular feature of the Global Central Bank Focus.
The Evolution and Ending of QEII
Ben Emons
The Fed’s long-term securities asset purchases – dubbed
“quantitative easing,” or QE, for short – link asset prices to the
economy. The Fed engineered such a linkage via a sequence of signals
that were met with anticipation in the financial markets for an
aggressive style of monetary easing.
“quantitative easing,” or QE, for short – link asset prices to the
economy. The Fed engineered such a linkage via a sequence of signals
that were met with anticipation in the financial markets for an
aggressive style of monetary easing.
The sequence began in the fall of 2008 when the federal funds rate
moved toward the zero bound, resulting in November 2008 in the
announcement of the Fed’s first asset purchase program consisting of
agency securities and agency mortgage-backed securities. At the time,
the purchase of Treasury securities was being evaluated for their
potential benefits.
moved toward the zero bound, resulting in November 2008 in the
announcement of the Fed’s first asset purchase program consisting of
agency securities and agency mortgage-backed securities. At the time,
the purchase of Treasury securities was being evaluated for their
potential benefits.
The Fed had two initial intentions for its asset purchases: to
address distressed credit markets and to support the housing sector.
Both goals were facilitated largely by liquidity support programs such
as the Term Asset-Backed Securities Loan Facility. Anticipation of
additional action grew when in December 2008 Fed Chairman Ben Bernanke
made a stronger case for quantitative easing, driving Treasury yields
sharply lower.
address distressed credit markets and to support the housing sector.
Both goals were facilitated largely by liquidity support programs such
as the Term Asset-Backed Securities Loan Facility. Anticipation of
additional action grew when in December 2008 Fed Chairman Ben Bernanke
made a stronger case for quantitative easing, driving Treasury yields
sharply lower.
This occurred in a similar fashion with QEII when Bernanke in
August 2010 spoke to the effectiveness of asset purchases at the Fed’s
annual summit in Jackson Hole. The intention of quantitative easing
however was different from credit easing; it was a rebalancing effect.
By signaling quantitative easing, investors’ anticipation drove
portfolio allocations into Treasuries.
August 2010 spoke to the effectiveness of asset purchases at the Fed’s
annual summit in Jackson Hole. The intention of quantitative easing
however was different from credit easing; it was a rebalancing effect.
By signaling quantitative easing, investors’ anticipation drove
portfolio allocations into Treasuries.
When Treasury yields became very negative in real terms, it pushed
investors into equities, corporate bonds and other assets that had
positive real rates. The premise of this strategy was that portfolio
assets are imperfect substitutes. By changing drastically the yield of
‘risk-free’ assets, a domino change occurred in other assets, which is
the portfolio rebalancing effect. As a result, the expansion of the
Fed’s balance sheet became very positively correlated with returns on
the S&P 500 index during QEI & QEII, as shown in Figure 3.
investors into equities, corporate bonds and other assets that had
positive real rates. The premise of this strategy was that portfolio
assets are imperfect substitutes. By changing drastically the yield of
‘risk-free’ assets, a domino change occurred in other assets, which is
the portfolio rebalancing effect. As a result, the expansion of the
Fed’s balance sheet became very positively correlated with returns on
the S&P 500 index during QEI & QEII, as shown in Figure 3.
The true intention of QE therefore was to generate a self-feeding
mechanism of expectations building on expectations in a way similar to
the money multiplier. During QEI as well as QEII, the Fed succeeded with
this strategy as the portfolio balance had a knock-on effect on its
favorite gauge of inflation expectations, the 5-year/5-year forward
break-even derived from Treasury inflation-indexed securities. This is a
market-based measure where investors believe inflation will be in five
years looking five years out.
mechanism of expectations building on expectations in a way similar to
the money multiplier. During QEI as well as QEII, the Fed succeeded with
this strategy as the portfolio balance had a knock-on effect on its
favorite gauge of inflation expectations, the 5-year/5-year forward
break-even derived from Treasury inflation-indexed securities. This is a
market-based measure where investors believe inflation will be in five
years looking five years out.
The positive correlation between the change in the Fed’s balance
sheet and forward break-even inflation shows a direct connection with
the rise in asset prices (Figure 3). Hence the Fed has created a
transmission channel it can call upon if it wishes to utilize QE in the
future. The success of this transmission hinges on several associated
costs. There is the stock effect represented by assets on the balance
sheet and a flow effect from the Fed’s daily purchases. Fed research has
shown that the impact on interest rates from the flow effect is
relatively small (~3 basis points) mainly because operations are
preannounced, but the stock effect can be larger when either announced
(~70 basis points) or signaled (~30 bps). Other Fed research has
estimated projected deficits (flow) and debt (stock) can be worth 25
basis points in terms of risk premium.
sheet and forward break-even inflation shows a direct connection with
the rise in asset prices (Figure 3). Hence the Fed has created a
transmission channel it can call upon if it wishes to utilize QE in the
future. The success of this transmission hinges on several associated
costs. There is the stock effect represented by assets on the balance
sheet and a flow effect from the Fed’s daily purchases. Fed research has
shown that the impact on interest rates from the flow effect is
relatively small (~3 basis points) mainly because operations are
preannounced, but the stock effect can be larger when either announced
(~70 basis points) or signaled (~30 bps). Other Fed research has
estimated projected deficits (flow) and debt (stock) can be worth 25
basis points in terms of risk premium.
QEI saw essentially two ends when the Treasury and MBS programs
finished respectively on 10/29/09 and 3/31/10. As Figure 4 shows, the
premium in forward rates was then relatively small (10 to 25 basis
points), and it consisted in part of premiums for liquidity, term to
maturity, and future rates on top of expectations for QE’s end. For the
period ending when the Fed is scheduled to end QEII in June, there is
only a small premium in the forwards, but through December 31, 2011 the
premium is larger (40 to 70 basis points) partially because interest
rate hike expectations have increased.
finished respectively on 10/29/09 and 3/31/10. As Figure 4 shows, the
premium in forward rates was then relatively small (10 to 25 basis
points), and it consisted in part of premiums for liquidity, term to
maturity, and future rates on top of expectations for QE’s end. For the
period ending when the Fed is scheduled to end QEII in June, there is
only a small premium in the forwards, but through December 31, 2011 the
premium is larger (40 to 70 basis points) partially because interest
rate hike expectations have increased.
The cost associated with the end of QEII therefore appears to be
mostly factored into forward rates and so the true exit cost lies in
different areas. At the end of QEI, the Fed’s 5YR/5YR forward inflation
stood near 2.9%, but the European sovereign crisis dampened inflation
worries and reversed those quickly. Today, however, fears of contagion
stemming from Europe’s debt dilemma have fallen, boosting the 5YR/5YR to
about 3.1%, posing a challenge for the Fed to create a smooth exit from
QEII.
mostly factored into forward rates and so the true exit cost lies in
different areas. At the end of QEI, the Fed’s 5YR/5YR forward inflation
stood near 2.9%, but the European sovereign crisis dampened inflation
worries and reversed those quickly. Today, however, fears of contagion
stemming from Europe’s debt dilemma have fallen, boosting the 5YR/5YR to
about 3.1%, posing a challenge for the Fed to create a smooth exit from
QEII.
Coinciding with the end of QEII is the debate on the federal debt
limit. As QEII has kept the real Treasury rate persistently negative and
thus supported the portfolio balance effect, the risk is that real
rates suddenly turn sharply positive on inflation or debt concerns, thus
feeding a negative effect from the link between asset prices and the
economy. This is why the Fed is likely to finish QEII as planned with
sufficient communication to provide as smooth an exit as possible.
limit. As QEII has kept the real Treasury rate persistently negative and
thus supported the portfolio balance effect, the risk is that real
rates suddenly turn sharply positive on inflation or debt concerns, thus
feeding a negative effect from the link between asset prices and the
economy. This is why the Fed is likely to finish QEII as planned with
sufficient communication to provide as smooth an exit as possible.
European Central Bank Focus
Andrew Bosomworth
What Next?
Earlier this month the Governing Council of the European Central
Bank (ECB) decided to raise the rate on the main refinancing operation
(MRO), which provides the bulk of liquidity to the banking system, by 25
basis points to 1.25% having left it unchanged for almost 2.5 years.
Investors seeking to comprehend why policy was tightened despite the
dire state of public finances in Europe’s periphery perhaps took comfort
from ECB President Trichet’s response to a question whether more rate
hikes are in store: “We did not decide today that it would be the first of a series of interest rate increases.” Phew.
Bank (ECB) decided to raise the rate on the main refinancing operation
(MRO), which provides the bulk of liquidity to the banking system, by 25
basis points to 1.25% having left it unchanged for almost 2.5 years.
Investors seeking to comprehend why policy was tightened despite the
dire state of public finances in Europe’s periphery perhaps took comfort
from ECB President Trichet’s response to a question whether more rate
hikes are in store: “We did not decide today that it would be the first of a series of interest rate increases.” Phew.
Was that not a signal that Europe’s already steep yield curve
prices in too many hikes: 2% by the end of this year and 2.5% by end
2012? Indeed it likely does, but two things – history and loan growth –
suggest investors should draw little comfort from President Trichet’s
answer.
prices in too many hikes: 2% by the end of this year and 2.5% by end
2012? Indeed it likely does, but two things – history and loan growth –
suggest investors should draw little comfort from President Trichet’s
answer.
In December 2005, the ECB also raised the MRO rate by 25 basis
points, back then to 2.25%, having left it unchanged at “historically
low levels” for exactly 2.5 years. And in response to a similar question
about whether there were more interest rate hikes to come, President
Trichet said, “There is not an ex ante decision of the Governing
Council at today’s meeting to engage in a series of interest rate
increases.” Yet three months later the ECB hiked again, to 2.5%,
and it continued doing so in regular two and three month intervals until
reaching 4.25% in June 2007. Upshot: the ECB makes its mind up one step
at a time and what is important is the medium-term direction of the
economy. While history never repeats itself, a similar dynamic may be in
store again.
points, back then to 2.25%, having left it unchanged at “historically
low levels” for exactly 2.5 years. And in response to a similar question
about whether there were more interest rate hikes to come, President
Trichet said, “There is not an ex ante decision of the Governing
Council at today’s meeting to engage in a series of interest rate
increases.” Yet three months later the ECB hiked again, to 2.5%,
and it continued doing so in regular two and three month intervals until
reaching 4.25% in June 2007. Upshot: the ECB makes its mind up one step
at a time and what is important is the medium-term direction of the
economy. While history never repeats itself, a similar dynamic may be in
store again.
To start with, growth in loans to the private sector is responding
positively to the previous years’ stimulating monetary and fiscal
policies. Within the recent 2.6% year-on-year growth in private sector
loans, loans to non-financial corporations have finally stopped
contracting, and lending for house purchases in the entire eurozone has
picked up to 4%, a rate that masks a very heterogeneous pattern of
credit creation across member states from contraction in Spain to boom
in Slovenia.
positively to the previous years’ stimulating monetary and fiscal
policies. Within the recent 2.6% year-on-year growth in private sector
loans, loans to non-financial corporations have finally stopped
contracting, and lending for house purchases in the entire eurozone has
picked up to 4%, a rate that masks a very heterogeneous pattern of
credit creation across member states from contraction in Spain to boom
in Slovenia.
More troubling for a central bank, however, measures of inflation
expectations continue to rise. The European Commission’s survey of
consumers’ price expectations over the next 12 months, for example, show
they have risen consecutively since autumn 2009 and are back at levels
last seen in the heyday before Lehman Brothers defaulted.
expectations continue to rise. The European Commission’s survey of
consumers’ price expectations over the next 12 months, for example, show
they have risen consecutively since autumn 2009 and are back at levels
last seen in the heyday before Lehman Brothers defaulted.
A 1.25% policy rate thus appears consistent neither with the
improving health of the eurozone economy nor with the firm anchoring of
inflation expectations. And even if the ECB were to raise the rate to
the level of next year’s forwards at 2.5%, it is important to realize
that even that rate is low by historical standards. Indeed, the policy
rate in modern-day Germany and the eurozone has averaged 4.5% since
1875. So what’s next? Another rate hike, I would presume.
improving health of the eurozone economy nor with the firm anchoring of
inflation expectations. And even if the ECB were to raise the rate to
the level of next year’s forwards at 2.5%, it is important to realize
that even that rate is low by historical standards. Indeed, the policy
rate in modern-day Germany and the eurozone has averaged 4.5% since
1875. So what’s next? Another rate hike, I would presume.
Emerging Markets Central Bank Focus
Lupin Rahman
Central Banks Get Prudent in Emerging Markets: Is It Enough?
Brazil’s recent increase in the tax on financial transactions
related to foreign investments, the IOF tax (Imposto sobre Operações
Financeiras), to limit short-term external borrowing and restrain
consumer credit highlights the increasing use of macroprudential
measures across emerging markets as a key component of monetary policy
(Figure 5). But how effective are such measures likely to be, and what
are the risks?
related to foreign investments, the IOF tax (Imposto sobre Operações
Financeiras), to limit short-term external borrowing and restrain
consumer credit highlights the increasing use of macroprudential
measures across emerging markets as a key component of monetary policy
(Figure 5). But how effective are such measures likely to be, and what
are the risks?
Brazil may be the most visible example, but it is far from the only
one. The People’s Bank of China (PBOC) explicitly adopted the broader
use of quantitative measures, with reserve requirement ratios (RRR)
effectively replacing rate hikes as the main monetary tool. In the last
six months, RRR have been hiked a cumulative 350 bps while the prime
lending rate has been raised 75 bps.
one. The People’s Bank of China (PBOC) explicitly adopted the broader
use of quantitative measures, with reserve requirement ratios (RRR)
effectively replacing rate hikes as the main monetary tool. In the last
six months, RRR have been hiked a cumulative 350 bps while the prime
lending rate has been raised 75 bps.
In Korea’s case, the focus of recent measures has been on affecting
the composition of capital flows with the central bank (CB) imposing a
bank levy on non-deposit foreign currency liabilities and imposing a
leverage cap on banks’ FX derivatives positions. Meanwhile in the most
unorthodox move so far, Turkey’s CB hiked reserve requirements 800 bps
for short-term deposits while cutting the policy rate by 75 bps to reduce incentives for short-term foreign portfolio flows.
the composition of capital flows with the central bank (CB) imposing a
bank levy on non-deposit foreign currency liabilities and imposing a
leverage cap on banks’ FX derivatives positions. Meanwhile in the most
unorthodox move so far, Turkey’s CB hiked reserve requirements 800 bps
for short-term deposits while cutting the policy rate by 75 bps to reduce incentives for short-term foreign portfolio flows.
A cursory look at the recent measures implemented across emerging
markets points to the broad scope and somewhat undefined nature of
macroprudential policies. It is truly a case of incremental
experimentation.
markets points to the broad scope and somewhat undefined nature of
macroprudential policies. It is truly a case of incremental
experimentation.
At their most basic, macroprudential measures are
targeted/rule-based techniques implemented to limit the buildup of
financial risks and improve the resilience of the financial system to
shocks. As such they may include capital controls or prudential
regulations on selective flows (e.g. Brazil’s tax on corporate foreign
borrowing with less than two years maturity), reserve requirement ratios
which target the ability of banks to extend credit, and taxes on
specific credit sectors, e.g. auto loans or consumer credits. Broader
definitions include all microprudential measures on financial
institutions as well as broad measures to limit asset market bubbles,
such as via strict lending rules for second mortgages.
targeted/rule-based techniques implemented to limit the buildup of
financial risks and improve the resilience of the financial system to
shocks. As such they may include capital controls or prudential
regulations on selective flows (e.g. Brazil’s tax on corporate foreign
borrowing with less than two years maturity), reserve requirement ratios
which target the ability of banks to extend credit, and taxes on
specific credit sectors, e.g. auto loans or consumer credits. Broader
definitions include all microprudential measures on financial
institutions as well as broad measures to limit asset market bubbles,
such as via strict lending rules for second mortgages.
Underlying this shift in CB policy focus has been the combination
of accelerating capital inflows into emerging markets following the
Fed’s pursuit of QEII and a zero policy rate that results in rising
interest rate differentials. These global factors have not only resulted
in appreciation pressures on currencies, but they have also led to a
rapid increase in short-term inflows into domestic equity and debt markets and concurrently encouraged a surge in short-term foreign exchange liabilities of the private sector.
of accelerating capital inflows into emerging markets following the
Fed’s pursuit of QEII and a zero policy rate that results in rising
interest rate differentials. These global factors have not only resulted
in appreciation pressures on currencies, but they have also led to a
rapid increase in short-term inflows into domestic equity and debt markets and concurrently encouraged a surge in short-term foreign exchange liabilities of the private sector.
Moreover, rising liquidity in the banking system is driving
interbank rates lower, reducing the efficacy of policy rates in the
monetary transmission mechanism. Emerging markets central bankers are
understandably concerned about these phenomena particularly given the
additional macroeconomic risks posed by rising inflationary pressures as
commodity-price increases feed through and domestic output gaps close.
interbank rates lower, reducing the efficacy of policy rates in the
monetary transmission mechanism. Emerging markets central bankers are
understandably concerned about these phenomena particularly given the
additional macroeconomic risks posed by rising inflationary pressures as
commodity-price increases feed through and domestic output gaps close.
Will the Policies Work?
The extent to which macroprudential measures are likely to be
effective in limiting distortions as well as dampening inflation remains
an open question.
effective in limiting distortions as well as dampening inflation remains
an open question.
There is some evidence suggesting that quantity-based measures can
affect the composition of capital flows as well as broad credit
conditions. Nevertheless, insofar as macroprudential policy frameworks
are less developed and less tested than more orthodox interest-based
policy frameworks, there is good reason for pragmatism in terms of what
they can deliver. There is also the issue of the extent to which they
can be circumvented given their (typically) narrower focus, and the
ability and costs of regulation for supervisory authorities playing
catch-up with the private sector.
affect the composition of capital flows as well as broad credit
conditions. Nevertheless, insofar as macroprudential policy frameworks
are less developed and less tested than more orthodox interest-based
policy frameworks, there is good reason for pragmatism in terms of what
they can deliver. There is also the issue of the extent to which they
can be circumvented given their (typically) narrower focus, and the
ability and costs of regulation for supervisory authorities playing
catch-up with the private sector.
The challenge for markets is therefore to assess the overall impact
of these measures together with any spillover effects on monetary
conditions, inflation and ultimately policy rates. Macroprudential
measures are most likely to be effective in reducing systemic financial
risks when they are undertaken alongside a traditional, rate-driven
tightening cycle as opposed to being enacted in place of
interest rate hikes. While this has been the case so far in some
emerging markets – e.g. Brazil has hiked a cumulative +325 bps since
2010 as well as putting forward a 0.5% of GDP fiscal consolidation plan –
this has not in others – e.g. Turkey.
of these measures together with any spillover effects on monetary
conditions, inflation and ultimately policy rates. Macroprudential
measures are most likely to be effective in reducing systemic financial
risks when they are undertaken alongside a traditional, rate-driven
tightening cycle as opposed to being enacted in place of
interest rate hikes. While this has been the case so far in some
emerging markets – e.g. Brazil has hiked a cumulative +325 bps since
2010 as well as putting forward a 0.5% of GDP fiscal consolidation plan –
this has not in others – e.g. Turkey.
The risks are many, led by the increasing challenges to emerging
market central banks’ credibility in fighting inflation and achieving
stated inflation-targets. EM policymakers will have no choice but to be
pragmatic, while also pointing fingers at others (in this case, the
U.S.) for the source of their headaches. Meanwhile, investors will need
to adapt, including positioning for rising one-year forward inflation
expectations in emerging markets and local curve steepening.
market central banks’ credibility in fighting inflation and achieving
stated inflation-targets. EM policymakers will have no choice but to be
pragmatic, while also pointing fingers at others (in this case, the
U.S.) for the source of their headaches. Meanwhile, investors will need
to adapt, including positioning for rising one-year forward inflation
expectations in emerging markets and local curve steepening.
»
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has reached the Keynesian Endpoint
Kinda late on that one. We buy nothing of wood, stone or metal for a very long time and yes I have Job and save for the day. For the argument if they build it they will buy is a strawman on fire. The Consumer is the most ruthless master. In our area taxes now are claiming housing. Yea read history and see how that fared. When no bid happens to throw people out in the street only then will the courage of community throw off the avarice of the day. When all thing are local you know a new day has dawned until then you will be at the mercy of the one you rale against. "an abnormal crackling or rattling sound heard upon auscultation of the chest, caused by disease."
Idiots top to bottum.
Calling WB7...
Where is our Negative Alpha Bill?
Thought you would have been all over this.
has reached the Keynesian Endpoint
Not quite, Greece took it few steps further in 2009.
'There is a crowd standing outside and, although there is no wrongdoing to make them as angry as the crowd that stood outside of Charles Ponzi’s office before he was busted, they are just as anxious.' -- Bill Gross
This is where Bill Gross's Ponzi analogy runs off the rails. Both the Bernank and Charles Ponzi were engaged in pyramid schemes, crediting their customers with balances that didn't actually exist. That the Bernank enjoys a 'legalized' counterfeiting privilege from a corrupt, bankster-owned Congress doesn't make his pyramid scheme any less immoral or illegal than Ponzi's was.
The Bernank's ruinous depredations continue because even his harshest mainstream critics, such as Bill Gross, refuse to take off the gloves and nail him as the common criminal he is. Creating money out of thin air is common law fraud, and always will be, regardless of what the unconstitutional Federal Reserve Act says.
If I were president, hundreds of PhD Econ tax feeders at the Federal Reserve would be put to work in shackles and loincloths, digging ditches with their bare hands in the putrid swamps along the Potomac.
'Mr. President, the economists have no bread.'
'Let them eat fiat. Bwa ha ha ha!'
They aren't creating money out of thin air .. they pledged your houses.
Public Law 106–122
106th Congress
An Act
To amend the Federal Reserve Act to broaden the range of discount window loans which may be used as collateral for Federal reserve notes. <<<<<———
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That the
third sentence of the second undesignated paragraph of section
16 of the Federal Reserve Act (12 U.S.C. 412) is amended by
striking ‘‘acceptances acquired under the provisions of section 13
of this Act’’ and inserting ‘‘acceptances acquired under section 10A,10B, 13, or 13A of this Act’’.
Approved December 6, 1999.
Federal Reserve Act
Section 10B. Advances to Individual Member Banks
a) Any Federal Reserve bank, under rules and regulations prescribed by the Board of Governors of the Federal Reserve System, may make advances to any member bank on its time or demand notes having maturities of not more than four months and which are secured to the satisfaction of such Federal Reserve bank. Notwithstanding the foregoing, any Federal Reserve bank, under rules and regulations prescribed by the Board of Governors of the Federal Reserve System, may make advances to any member bank on its time notes having such maturities as the Board may prescribe and which are secured by mortgage loans covering a one-to-four family residence. Such advances shall bear interest at a rate equal to the lowest discount rate in effect at such Federal Reserve bank on the date of such note.
We'll all be receiving our new mortgage coupon book. Payable to "The Bernank c/o The Fed"
For the Federal Reserve and the U.S. Treasury, it is time to make the donuts. There is a crowd standing outside and, although there is no wrongdoing to make them as angry as the crowd that stood outside of Charles Ponzi’s office before he was busted, they are just as anxious, and it is going to take a lot of convincing to get them to show up at the next Treasury auction and the one after that, and the one after that, and….Say what?
*Posted before I read machineh's post*
Even in this more truthiness version of an oped from someone that's close to the proximity of central planning killers, I would disagree with the notion that any QE was necessary to help the financial system from the brink of disaster. The financial system is still broke and more reliant upon the global ponzi than before-- the imbalances just within this sector alone have grown tremendously. The banks are accounting gimmics wrapped up in one big bucket shop-- touting the treadmil like gains of a keynesian wet dream. The financial system has come to the point where it needs 'guarantees' to operate in its most basic functions, and their riskier ventures are back to levered levels seen prior to the crisis-- no I would say that the financial system is a derivative of what has become a shit show of central banking policy and fiscal mismanagement-- as the 'lenders of last resort' attempt to manage market expectations and ignore the greater structural problems the fed's own undoing will certainly have greater levered impacts upon the broken financial system. All ponzi's come to an end, it's a function of the mark or patzy waking up to the scheme.
QE has never been a short term or long term solution for anything-- it only shifted the perceived risk from private to public and that risk would be mitigated with proper monetary tools and prudent management of the fiscal situation-- this in itself was another illusion as it didn't shift risk but merely spread it and acting more as a form of slow default which will now only be expedited as the can that was kicked down the street is coming to a dead end.
Emerging market central banks are not immune to the system collapsing-- it will not spare anyone, but it will be the only way to truly purge the system of an inherent flaw: centrally planned economic policy will only benefit the few at the cost of many or put another way the imbalances will correct one way or another.
+ well put my friend
I agree nicely put
APMEX Now Out of Silver Eagles AND MAPLES, Until May 27th!
http://silverdoctors.blogspot.com/2011/04/apmex-now-sold-out-of-silver-e...
Glad some one is telling some truth today
It also seems that Tyler is having to work over time trying to stimulate the comment sectin what with all the top blue post rearranging on a down metals/commoditties day. Anyone else feel this is a accurate correlation to make? As a forum are we that sensitve to a healthy natural correction when backwardation (silver at least or was per http://www.kingworldnews.com/kingworldnews/King_World_News.html) still exists regularly and obvious Fed games continue? Just sayin...
Headline is bullshit there was no QE2, QE, the first one, never stopped, not only that but without the FED buying MBS a huge chunk of the buyers (who got bailed out) wouldn't be able to buy. Now with their 0% lending from the discount window and guranteed profits they are buying even more. QE is a declaration of fraud. There was never any going back.
Stop with the bullshit propaganda.
Since a picture is worth 1000 words:
I like how cynical everybody is. It's possible Bill Gross is just trying to headfake everybody, but if he is, he's wrong by sending everybody into the right direction. Can anybody look at that chart and think that a Federal tax revenue of 18% is enough to support the actual debt - and it's just going to continue to go up. You want to see how much the debt will be in 9 years?
that's projected debt (I assumed about a 9.4% growth in the national debt since 1971) and actual. As you can see, it's about 9.4%. At that rate, we'll be at around 33 trillion dollars of debt by 2020.
But what about tax revenues? What rate are they growing at?
Well fuck me in the ass. I guess pictures aren't allowed on this site even though they show up in the editor.
Good luck everybody believing that the dollars are the place to go. The US isn't going to allow debt to default - they'll print as much money as needed to make everybody whole. That's the path of least resistance, and the banks don't care - they just want to show a profit and balanced books. The only people that don't want to see inflation are savers, who were dumb enough to trust our government.
"Good luck everybody believing that the dollars are the place to go. The US isn't going to allow debt to default - they'll print as much money as needed to make everybody whole. That's the path of least resistance, and the banks don't care - they just want to show a profit and balanced books. The only people that don't want to see inflation are savers, who were dumb enough to trust our government."
I wish I could junk this ... but alas, I'm afraid it is true. The path of least resistence is the only true and practical path for the politician who whats to be reelected.
Death by a thousands cuts (in the dollar) ... unless, of course, everyone goes down harder and faster
Occams Razor
states that the theory with the least number of assumptions is most probably correct. A theory with no assumptions, of course, must be correct.
Kind of ironic that the guy that made the cornerstone of science is constantly misquoted..
billy boy is just pissed that treasury market has not tanked in response to his proclamation that treasuries are worthless. so he is now resorting to scare tactics to bring the market down. otherwise the worlds most influential bondholder looks silly
It is the Peter Lynch principle. You lose your touch and get sent out to pasture. Bill knows the end of his career is close now because this is the second time he has tried the same thing and messed up.
People pay high expense ratios on bond funds because they want to be in bonds not cash.
Negative Alpha Bill's days are almost over and he knows it. Rather than leave with dignity he will be known as the unstable ranter who threw the dice twice and lost, then tried to talk his book to influence the market.
TIPS have been going up non-stop after Bill Gross poo-pooed bonds.
Tomorrow is the "moment of truth". Either QE3 is implemented, or they pull the plug and everything crashes:
- Risk Currencies
- Stocks
- PM's
- Oil
And by default, guess who wins in that scenario? The Almighty U.S. Dollar and U.S. Treasuries, which will more than likely skyrocket into Outer Space.
Realy Robot Trader?,
Do you think he (Ben) has enough credibility to make all the folks sell PM's (the ones who physically own)? I doubt it...
but I would not be surprised to see deflation in other assets
Risk off is risk off ... PM's will tumble for a while ... but QEofsomeform will come back because of the maturing bonds and the requirments for new spending and then PM's restart their relentless rise
The physical PM will be just fine, hanging out for a century if necessary. Its the paper gold that will get torched. Just drift back to yesteryear when Italian goldsmiths were issuing warehouse receipts for ducats and doubloons. Got good paper?
Yup. Talk about a double-edged sword. Either way, there's going to be a beheading.
How come you can put up pictures, and I can't?
He's a "contributor". Bow to his greatness.
Oh, well screw it then.
If you guys aren't allowed to see my graphs of our quite real inevitable doom, well, your loss.
Yeah, nothing is better for bonds and worse for PMs than implicit default.
Good luck with that one.
The only way to put out the PM fire is to use fire. A gold standard will halt the rise, though it will cause a one time massive revaluation UPWARD for gold.
But that won't happen, because the idiots in charge sold all of our gold decades ago, more than likely.
Well, of course they'll try to seize as much gold as they can first.
I'll be heading for Canada with a truck load of gold and silver to go fishing and hunting for a few years. Would rather head to a beach in mexico but my gold wouldn't do me any good if I weren't around to enjoy it!
"There is a crowd standing outside and, although there is no wrongdoing to make them as angry as the crowd that stood outside of Charles Ponzi’s office . . ."
Pardon me, Mr. Gross, but you're full of shit. There has been plenty of wrongdoing; there just hasn't been much in the way of prosecution. What can we expect though? Criminals to prosecute themselves and their friends?
While AmeriCON'd slumbers. USD crashes through 52wk support. Got gold? Got silver? Chicoms/China mouse farted benrons direction tonight and by morning it may be getting very, very, ugly for the USD. Think we have James Turks crashcading of the USD commencing where, we the people, will be astounded at the velocity of it's decline!! Lest the dead head feds just halt it all tomorrow and do a direct devaluation overnight which I felt was in the offing. Oh the horror! Pass it along!!
See, this is what I don't understand.
Guys go on about the lack of real wealth making businesses in the USA and yet, those same people expect to pay bottom dollar for everything they consume, without ever thinking that fierce competition and finding super effeciency (abroad) is anything other than good. You're all moaning about $4.00 gasoline for goodness sake and expect top quality steak for peanuts. You (we all) must have a major problem grasping reality.
Well, the current situation and the backfire that's about to ignite can only be attributed to the USA (and the Western economies in general, on a personal, corporate and sovereign scale) operating their own miriad PONZI schemes using the poor of other nations to prop them up and subsidise their grandiose opinion of their own self worth. We've all known for countless years, that cheap goods in our shops have been put there on the back of blood, sweat, extreme poverty and insufferable lives of poor wretches in foreign lands.
Cake, eat, have, too, can't. The cake is quickly running out. Why did no-one think this whole scheme through to its only logical conclusion?The whole thing has been an illusion for at least 200 years.
The great challenge facing mankind in the next 50 years will be to have something like full employment, based on an ever shorter working week, paying a better than minimum wage. The alternative doesn't warrant thinking about, as it could well be your kids and grandchildren who'll be starving to death, nuked or wasted in some other way. Patently, Capitalism doesn't really deliver to the masses. What the hell can?
Rant over.
Central Banks + Globalization = StagFukkingFlation for All.
Law of entropy suggests in 20 years or less, all the world's non-ruling class will be making the equivalent of $10/hr and entirely dependent upon government assistance.
In 20 years, $10/hr will be more like $4/hour in today's dollars.
Also that's about the time social security, medicare/medicaid, pension funds, all run out of money.
IMF says make that 5years.
Better start saving your money and start your own business. Making an above average income is hard work. You up for it?
Nice rant, you sound exactly like the marxist Obama.
Yeah capitalism is terrible because man exploits man.
We all know communism is the exact opposite.
The means of production consists of
1. Capital
2. Labour
3. Plant (land, buildings, equipment)
4. Materials
Each of these needs to be in balance.
When Labour is too powerful, production can be disrupted (strikes), the cost of production goes up (through increased wages), along with the price of goods.
When there is a monopoly on Plant or Materials, the same can happen.
Once you have solved the problem of labour, plant and materials, the power of capital (and those who control it) rises, and causes a different type of imbalance, through the expansion of credit.
This is an extremely predictable failure of capitalism. If wages are frozen, and the market for materials is sufficiently efficient (i.e. unprofitable for the producers), then there is no possible way for borrowers to ever pay back the money that the controllers of capital have lent to them.
Worse, every measure taken against borrowers (effectively making them slaves) impoverishes them further, creating a negative feedback loop of both increased indebtedness and increased inability to repay.
Historically, once this feedback loop reaches it's tipping point, and those impoverished have reached the revolution level, countries with similar problems then send their impoverished off to war with another country's impoverished.
At the end of the 20th century, we had the two great social failures, capitalism and communism, fighting proxy wars with each other so as each could distract their general population from the inevitable conclusion they would reach if they remained in the downward spiral created by the system they lived in.
In the 21st century, what will we do? If it is to be war, then presumably the sabre rattling from Washington and Beijing will rise in crescendo shortly. The problem in the atomic age is fighting limited warfare in which large numbers of your impoverished monkeys can participate (and hopefully die), without the conflict going nuclear. Perhaps the disputed islands north of Japan would be an ideal area.
But I digress.
As for a system that delivers, it is not possible as long as our societies are organised like primates. For THAT to change seems impossible at this juncture in history.
+1 At a certain point one has to come to terms that Marx was more or less correct. Engels can suck it, tho.
Buy oil and gold...USO and GLD...
Be Happy::-))
Charting the Course to $7 Gas
By J. Kevin Meaders
http://mises.org/daily/5223/Charting-the...
Remember this Bernake interview
http://www.thedailyshow.com/watch/tue-december-7-2010/the-big-bank-theoryDo any of you guys really think that this whole game could have been played much differently, without causing as big a catastrophe? Their only way of paying down the debt is inflation, default, or both by degrees. It's how the whole phoney merry-go-round has worked up 'til now.
Let's say we bit down and took the fall 3 years ago. There would have been civil war in many countries by now and anyone assumed to have money or an allegiance to it (Silver & Gold bugs very much included) would have been mob lynched along with all the politicos and banksters long ago. This site wouldn't exist.
{{{THE JOKER}}}
Play Bill Pay Bill
''Gross display of Eyes Wide Shut Kubric Murder Suicide''
STARing
Chairsatan's Footlocker and The Global Push Up's
''Cameo'' Appearance by ''A Jelly Doughnut''
http://www.youtube.com/watch?v=5DgQ7t5yVPY
In a word: Doh!
Do I get six seven eight figures to figure this out? Help me out people, I feel neglected, underappreciated, underpaid.
sorry - double post
There will be so much vol. tomorrow...
The market is over compensating
Perhaps that's what the Bernank wants. It looks like 73.5 was the goal for tonight
GE is drooling as this happening. Ok, GE evaded or dodged not paying taxes and now this crap
Obama: Let’s fund clean energy by stripping giveaways to oil companies
http://www.rawstory.com/rs/2011/01/26/obama-strip-subsidies-oil-companies/
FUCK Washington and Wall Street!!!
With every passing week over and over and over it becomes more and more clear that the U.S. Government is under the control of corporations and that the CITIZENS OF THIS NATION ARE SLAVES TO THE KLEPTOCRACY, THE OLIGARCHY, THE KLEPTOLIGARCHY!!!
I have ZERO allegiance to this nation!!!
LIARS!!!
THIEVES!!!
NO ALLEGIANCE!!!
ZERO!!!
NONE!!!
"The U.S. must invest in its people, its land, and its infrastructure, ..."
Excuse me, but the "U.S." doesn't have a penny except it seizes it from its citizens, inflates the wealth away from holders of its currency, or borrows it from others. We only have to look to the way in which the "stimulus" money was spent on "shovel-ready" projeccts to see that should we allow government to carry out this "investment" that it will only result in crony politics, union payoffs, and hundreds of millions in "loans" that may never be repaid to well-connected electric car companies.
It is far more simple and far more reliable to just allow people to keep their own money and invest it as they please. When they prosper, there will be far more opportunities for every one of us to earn more as the pie gets larger. Government is free to propose and package investment opportunities for the private sector to consider. Let government put forth projects that are real values. The fact that this never happens shows to what extent government projects are not real investments, let alone good ones.
What Bernokio says doesn't matter.
What Tiny Tim says doesn't matter.
QE in some form will go on and on and on, publicly, behind the scenes (via proxy), whatever. It's the chosen path. End of story.
US yields will go into hyper-space, that is your end game. It's all China, they hold the key to forcing yields upward. IF they sell off reserves, or cut/sell UST holdings should make the USD bid and force yields upward. Financially China is more powerful than the US.
PIMCO is pissed cause yields are floating on 0%. Problem is China goes (property), the US will print and so will China, any-case bonds are a bad bet.
The political & bankster elite leaches have been sucking the blood from American taxpayers for so long. Now the leach is gorged and has become much larger than the host victim.
Will the leach in interest of self preservation let the host victime revive?
No, that's not what leaches do, they suck blood.
"Treasury investors will also realize that not only has QE suppressed the rates they earn on their Treasury holdings, QE promotes financial and economic conditions that hurt Treasury bond holders, primarily because it boosts economic growth and inflation,..."
The textbook description of von Mises' "mal-investment".
One thing. I wonder whether the recent so-called "debt reduction proposals" in congress and administration will end up being the "straw that broke the camels back".
I mean, if anyone had any doubts whether the predators-that-be could eliminate the deficit (much less debt) in any timeframe, or even reduce it substantially, the absurdity of what happened recently (whether the $38-billion "reduction" AKA $270-millon "reduction" (after CBO check)... where "reduction" is measured relative to an already assumed massive increase)... then all doubts have been removed.
This made two things clear:
#1: Neither congress or administration (or federal reserve) will offer any solutions to the deficit or debt problems.
#2: The only presidential candidate who might even pretend to do anything serious about the problem is RonPaul... who everyone in government and mainstream media have sworn to thwart at any cost.
Given the above (increasing mainstream realization that the system is utterly incapable of keeping the music playing much longer), more (or all) wheels seem sure to come off the economy of the USSA during the next year or two. Good. It is about time, and must happen before any viable change is possible.