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The Central Banks Are Fast Running Out of Bullets
Yesterday we worked through the illusion to reality for the ECB’s unlimited bond purchases, the end result being that the ECB:
- Didn’t announce anything new
- Is implementing the same policies it’s tried twice before with no success
- Is implementing policies that neither Spain nor Italy will go for
And finally…
- Has solved nothing due to the fact that of the two mega-bailout funds, one has only €65 billion in firepower left and the other has yet to be ratified by Germany
Today we turn our attention to the US’s Federal Reserve where the whole world expects the Fed to announce QE 3 at its FOMC meeting this Wednesday and Thursday.
There is a small problem of math with this. The Fed currently owns all but just $650 billion of the outstanding 10-30 year Treasuries. At this point, even a $200-300 billion QE program would create serious liquidity problems for the financial system.
Of course, the Fed could potentially implement another agency/MBS QE program. But that would be a very political move with the Presidential election so close. This, combined with current food and energy prices, makes it unlikely the Fed would want to do this.
Indeed, we’ve seen some striking admissions from the Fed recently. St Louis Fed President James Bullard:
“I am a little – maybe more than a little bit – worried about the future of central banking,” said James Bullard, president of the Federal Reserve Bank of St Louis, in a Financial Times interview at Jackson Hole. “We’ve constantly felt that there would be light at the end of the tunnel and there’d be an opportunity to normalise but it’s not really happening so far.”
The biggest worry on display at Jackson Hole was whether these bureaucrats, sitting at the heart of every mature economy, still have the power to influence demand now that interest rates cannot fall much further. Lurking behind many debates was this question: if central bank policies are so effective, why is the global economy not growing faster?
http://www.ft.com/intl/cms/s/0/a0e397b6-f8dd-11e1-b4ba-00144feabdc0.html
Here’s a Fed official, not only openly admitting that Fed policies aren’t working, but even calling the future of Central Banking into question. Take note: underlying realities are beginning to be asserted by officials at Central Banks around the globe. They’re running out of bullets.
So where does this leave us? Well, it’s highly unlikely the Fed will actually implement anything major this week. What we could see is a large, but hollow promise for action, much like the ECB’s promise of “unlimited” bond purchases based on certain “conditions” being met (an empty promise if ever there was one).
If this kind of empty promise is made, look for the market to top soon after.
And if the Fed fails to deliver this week… buckle up.
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leave graham alone, he is tylers sponsored child from zambia...........................
He has not been quite as spectacularly wrong as all the egghead deflationary crackpots and flat-earthers, who keep predicting an appreciating fiat currency in the midst of a financial and monetary crisis --- something which, incidentally, has NEVER been seen, even once, in all of monetary history under ANY circumstances. To be followed, presumably, by Bigfoot riding in on the back of a unicorn.
Leading a parade of Bob Prechter, John Mauldin and Gary Schilling?
What about the Yen?
http://stockcharts.com/h-sc/ui?s=$GOLD:FXY&p=D&yr=3&mn=0&dy=0&id=p18498415067
The main difference though is that the economy has run out of bullets. It hasn't grown in real terms in a decade. The Central banks bullets have done a fairly decent job disguising this via the inflationary camouflaged default method.
The Yen well Japan is buying our debt along with the Fed all part of how they hold the Ponzi together
Presenting The Shocking Source Of US Treasury Demand In The Past Year
Behold The "New Normal" Buyers Of First, Last And Only Resort
Japan had massive asset 'deflation' (i.e., price collapse) - property values and the share market 70% down from what they were at the bubble peak at the end of the 1980s -
But in terms of real cost of living, food, energy, personal services - they did not see 'deflation', although it was between almost stable and gently rising at many points.
Because property was still 'financed' by old under-water mortgages kept on the books for decades, rents did not go down like you would expect from the property price collapse. Japan is de-populating, though, with everyone getting older, and what basically happens is the more run-down places are abandoned and the more livable places somewhat keep costs the same.
BGIB, I am glad that you put the word 'deflation' in quotes when referring to asset price collapses, as of course such popping asset bubbles do not constitute actual deflation. In fact, I should properly have used such quotes myself in my earler post, as falling consumer prices, by themselves, do not strictly speaking constitute deflation either (although they would be a much stronger indicator of it).
What really 'frosts my balls' (as my father would have said) about all the disingenuous talk of 'deflation' today is that I believe a large, if not overwhelming, fraction of it is designed to confuse and misdirect the average investor and saver, expressly tailored to convince them that ongoing (and quite possibly elevated) fiat currency depreciation is no threat to them or their wealth, when in fact it is the single most important threat they face.
The so-called "Japanese Deflation" is just another one of the central banksters' "big lies", like the 'necessity' of their own existence. It has no more reality to it than the so-called current "recovery", or our current "low inflation" in the USA.
Consumer prices, overall, have NEVER fallen in any meaningful way, over any meaningful period, in any nation using a fiat currency --- ever. Fiat currencies exist for one reason and one reason only --- to fleece those forced to use them via constant and ongoing depreciation. Anyone who believes otherwise is either a fool, a liar, or merely completely ignorant of monetary history.
You can trash him all you want, but if you really think this is going to end any other way but complete devestation you need a check up.
Peter Schiff et al are always crying about the end of the world
at least Graham has the balls to put a date on it
but when the date comes and goes he's at least due a kick in the bollocks
Fair is fair
Rochambeau Capital!
Central banks might be running out of bullets but they are not short of snake oil.
Nor are we short of willing, even eager consumers, eh?
Our Fed ran out of bullets in 2009. This game they are playing will last as long as banks find it convenient to park reserves at the Fed. When the day comes when the banks pull the $1.7 trillion in reserves two things will happen;
1. There will be a run on the Fed like no other bank run in the history of mankind.
2. The Fed will be powerless watching the political and financial fall out from their asinine ZIRP for four years now.
Okay if you want to be technical about it when the monetary base hit 16% (at the end of QEII in 2011) the game was over. For the geeks out there who enjoy numbers.
What if the "day the banks pull" never comes..serious question from student crabshacker..
The banks are the Fed. The Fed is the bad bank where they shove their worthless assets.