Bank of Japan
The uncertainty surrounding the inevitability, if not the exact timing, of multiple and possibly overlapping volatility drivers is itself a source of volatility. For the average person, these signs can be scary. Taking steps to avoid the circus as much as possible, such as extracting money from the markets, securing personal assets, and waiting out the swings, can be a source of emotional comfort and future financial stability.
A robust economy would allow central banks to raise rates and still allow debts to be paid down. But that is not what is happening. And it won’t happen. Junkies rarely go out and get a job... and gradually “taper off” their habit. No. They have to crash... hit bottom... and sink into such misery that they have no choice but to go cold turkey. Now, major central banks are committed to QE and ZIRP forever. They have created an economy that is addicted to EZ money. It will have to be smashed to smithereens before the feds change their policies.
Central bank liquidity lines like those the Fed used to bailout the world seven years ago have become a fixture of the post crisis financial system. Since 2009, China has essentially blanketed the globe with yuan liquidity lines, inking swap agreements with nearly three dozen countries with the primary goal of increasing the degree to which the renminbi is used in international trade.
A look at the economic data and market psychology as a new week begins.
Explaining all that is wrong with the fraudulent US "jobs recovery" using the case study of Japan.
Monetizing the entirety of gross government bond issuance and amassing an equity portfolio worth just shy of $100 billion on the way to cornering the entire ETF market may come across as insanely irresponsible even in a world that is now defined by insanely irresponsible central banks, but Haruhiko Kuroda does not care because when it comes to QE and the financing of governments via central bank-assisted ponzi schemes, no one does it like the BoJ.
Following yesterday's turbulent bond trading session, where the volatility after the worst Bid to Cover in a Japanese bond auction since 2009 spread to Europe and sent Bund yields soaring again, in the process "turmoiling" equities, today's session has been a peaceful slumber barely interrupted by "better than expected" Italian and a German Bund auction, both of which concluded without a hitch, and without the now traditional "technical" failure when selling German paper. Perhaps that was to be expected considering the surge in the closing yield from 0.13% to 0.65%. Not hurting the bid for 10Y US Treasury was yesterday's report that Japan had bought a whopping $23 billion in US Treasurys in March, the most in 4 years so to all those shorting Tsys - you are now once again fighting the Bank of Japan.
"It was, at least in theory, simple enough in the old days," wrote a wistful W. Randolph Burgess, head of the New York Federal Reserve, in 1938. "In the present strange new world, where the old gold portents have lost their former meaning, where is the radio beam which the central banker may follow? What is the equivalent of gold?" The men of his era and of the late nineteenth century understood the meaning of such a question and, more importantly, why it is one that must be asked. But theirs was a different world, indeed — one without "QE," ZIRP," or "Unknown Knowns" as fiscal policy. And there were no helicopters, either.
The trends in both Japanese income and spending moved downward not at the inception of the tax increase but at the very start of QQE itself. Science is the study of observation whereas monetary economics has become the science of avoiding them. If economists want to see recovery in that they should be honest about so redefining the term. BoJ is two years into QQE and the hole that has been dug for the Japanese people is enormous, so it will be extremely difficult at this point just to get back to even without ever accounting for lost opportunity for compounding and time. Maybe that doesn’t count as the typical, natural recession but it is nothing short of a man-made disaster.
There is one thing riskier than investing in a free market: investing in a rigged market when you think the central bank has your back. At some point, the free market returns with a vengeance, like a coiled spring made out of pure risk. That time may be coming soon. When you devalue money and distort the supposed risk-free rate, you devalue every aspect of the capital structure, and of society itself.
The world economy is in the grips of a dangerous delusion. As the great boom that began in the 1990s gave way to an even greater bust, policymakers resorted to the timeworn tricks of financial engineering in an effort to recapture the magic. In doing so, they turned an unbalanced global economy into the Petri dish of the greatest experiment in the modern history of economic policy. They were convinced that it was a controlled experiment. Nothing could be further from the truth.
This was the “Rubicon” moment: the instant at which Central Banks gave up pretending that their actions or policies were aimed at anything resembling public good or stability
The end result of Fed policy appears to be to keep us in perpetual economic malaise, to keep us all confused. They keep interest rates low masking the huge structural issues of huge federal budget deficits and whenever the economy appears to be picking up a bit, they threaten to take away the government props of QE and low interest rates faster thereby slapping down the economy. All this happening while the ticking time bomb of huge Federal Debt accumulates more potency. There is no solution to the crisis, merely a choice of which roads to choose, a deflationary debt collapse, or a hyperinflationary dollar collapse or World War III. Pick your poison...
We heard from several central banks in the last few days, and what they had to say was just one more reminder that we are in a Hill Street Blues financial world. So, hey, let’s be careful out there - and then some!
The final and ultimate round of the Crisis that begin in 2008 will occur when faith is lost in the Central Banks.