We Are Nearing the End Game For Central Bank Intervention

Phoenix Capital Research's picture

 

The media and 99% of analysts believe the Fed is and can continue to act aggressively to prop up the markets, the fact is that the Fed has been reining in its monetary stimulus over the last nine months, largely relying on verbal intervention from Fed Presidents to push stocks higher.

 

We at Phoenix Capital Research have known this for some time. But the general public and financial media are only just starting to realize that the Fed, in some ways, is at the end of its rope in terms of monetary intervention. This has become increasingly clear in the Fed FOMC statements.

 

Consider the latest FOMC statement released earlier this week…

 

Fed Signals No Need for More Easing Unless Growth Falters

 

The Federal Reserve is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target.

 

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of their March 13 meeting released today in Washington. That contrasts with the assessment at the FOMC’s January meeting in which some Fed officials saw current conditions warranting additional action “before long.”

 

http://www.bloomberg.com/news/2012-04-03/fomc-saw-no-need-of-new-easing-unless-growth-slips-minutes-show.html

 

Ignore the verbal obfuscation here. The Fed knows that inflation is higher than 2%. It also knows that US growth is faltering. The above announcement is the Fed essentially admitting its hands are tied regarding more easing due to:

 

  • Gas being at $4 and food prices not far from record highs.
  • This being an election year and the Fed now politically toxic.
  • Growing public outrage over the Fed’s actions (secret loans, etc.) in the past.

 

Again, we are in a process of slow awakening to the fact that the Fed has not solved the problems that caused 2008. Instead, the Fed has exacerbated these problems (excess leverage) and created new problems in the process (inflation).

 

Fortunately for the Fed, the European Central Bank has picked up the intervention slack since the Fed began pulling back in mid-2011. Indeed, between July 2011 and today, the ECB has expanded its balance sheet by an incredible $1+ trillion: more than the Fed’s QE 2 and QE lite combined (and in just a nine month period).

 

The two largest interventions were the ECB’s LTRO 1 and LTRO 2, which saw the ECB handing out $645 billion and $712 billion to 523 and 800 banks respectively.

 

As a result of this, the ECB’s balance sheet exploded to nearly $4 trillion in size, larger than the GDPs of Germany, France, or the UK.

 

This rapid and extreme expansion of the ECB’s balance sheet (again it was greater than QE lite and QE2 combined… in nine months) indicates the severity of the banking crisis in Europe. You don’t rush this much money out the door this fast unless you’re facing something very, very bad.

 

This rapid expansion has also resulted in the ECB obtaining a similar political toxicity to that of the US Federal Reserve. Indeed, those European banks that participated in the LTRO schemes have found their Credit Default Swaps exploding relative to their non-LTRO participating counterparts.

 

The reason for this is obvious: any bank that participated in either LTRO implicitly announced that it was in dire need of capital. As a result of this the markets have stigmatized those banks that participated in the schemes, thereby:

 

  1. Diminishing the impact of the ECB’s moves.
  2. Indicating that the ECB is now politically toxic in that those EU financial institutions that rely on it for help are punished by the markets.

 

In simple terms, the Fed’s hands are tied and the ECB is out of ammo. The End Game for Central Bank intervention is approaching. And it won’t be pretty…  First Europe. Then Japan. Then the US.

 

So if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com

 

Good Investing!

 

Graham Summers

 

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com