The Magic Number Is Revealed: It Costs Central Banks $200 Billion Per Quarter To Avoid A Market Crash

Tyler Durden's picture

We have all seen it countless times before: visual confirmation that without the Fed's (and all other central banks') liquidity pump, the S&P would be about 70% lower than were it is now.

Most recently, this was shown last Friday in "Another Reminder How Addicted Markets Still Are To Liquidity" in which Deutsche bank's Jim Reid said:

The recovery from the lows after Bullard spoke yesterday is another reminder how addicted markets still are to liquidity. Indeed in today's pdf we reprint and  update a table from our 2014 Outlook showing the various phases of the Fed's balance sheet expansion and pausing over the last 5-6 years and its impact on equities and credit. We have found that the relationship broadly works best with markets pricing in the Fed balance sheet move just under 3 months in advance. We've also included our oft-used chart of the Fed balance sheet vs the S&P 500 to help demonstrate this. So end July / early August 2014 was always the time that this relationship suggested markets should enter a new more difficult phase. So we still think central bankers hold the key to markets going forward and there seems to be a hint of change in the Fed.


Another view was shown over the weekend, in "The Chart That Explains Why Fed's Bullard Wants To Restart The QE Flow" which shows that when the Fed's excess reserve firehose is turned on Max, stocks surge; when it isn't - as has been the case recently - they tumble.


So now that "best Keynesian practices" are out of the window, and everyone has once again turned Austrian, and only the "flow of money" (either inside or outside) matters, the question is how much do central banks need to inject to keep the stock market from crashing, let alone continuing to levitate. Luckily, Citi's Matt King has just done the math, and the answer is...

Here is his answer:

We think the markets’ weakness owes more to an almost belated reaction to a temporary lull in central bank stimulus than it does to any reduction in the effect of that stimulus in propping up asset prices. Figure 5 shows the rolling 3m combined liquidity injection by the Fed, the ECB, the BoE and the BoJ, plotted against the rolling 3m change in spreads. While the relationship is not perfect – liquidity flows across asset classes and across borders, and there are announcement and confidence effects in addition to the straightforward impact on net supply – it is this, not fundamentals, which we would argue has been the major driver of markets for the past few years (Figure 6 shows the same series plotted against global equities).


In case anyone missed it, and in case there is still any debate about this issue which we first explicitly stated nearly 6 years ago and were widely mocked by the all too serious intelligentsia, here is the key sentence again:

"it's the liquidity injections, not fundamentals, which we would argue has been the major driver of markets for the past few years."

And with that piece of New Normal trivia behind us, we continue:

For over a year now, central banks have quietly being reducing their support. As Figure 7 shows, much of this is down to the Fed, but the contraction in the ECB’s balance sheet has also been significant. Seen from this perspective, a negative reaction in markets was long overdue: very roughly, the charts suggest that zero stimulus would be consistent with 50bp widening in investment grade, or a little over a ten percent quarterly drop in equities. Put differently, it takes around $200bn per quarter just to keep markets from selling off.


If anyone ever needed any confirmation of what we said in June 2012, that "The Stock Is Dead, Long-Live The Flow: Perpetual QE Has Arrived", now you have it, and only qualified but quantified. Because to translate what Matt King - Citi's most respected strategist and the only person on Wall Street to warn about the Lehman collapse and its consequences before it happened, just said - if and when the global central bank liquidity tracker ever drops to $200 billion per quarter or less, the market will crash.

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Skateboarder's picture

Since that $200B doesn't really exist, I would venture that it is more accurate to say it doesn't cost 'em a penny.

Deathrips's picture

Imagined into existance fiat currency is given to a bank which promptly leverages it up x 15. Shortly after new 3 trillion deposits hit other banks which are then leveraged up x 15 again. Rinse repeat.


This is how they rule. Imagine currency that they can spend, while the pleebs work.



PAPA ROACH's picture

This is just the beginning of the worlds largest financial problem in history; the retiring 'Baby-Boomer' generation. The pension funds and entitlements are so absurdly underfunded, they must keep the equity markets on a growth pace to even think about fulfilling payments. When these retirement programs were designed decades ago, they largely had planned for an annual average pace of appreciation between 8-12% on the long haul. That included interest income from bonds/treasuries that today is nearly non-existant, thus all focus by the FED is on equities. This generation has been the largest parasite on this country for decades, from health care to the entitlement programs; it has always been all about them, fuck the future, let them figure it out. What would happen if there was no money to pay out to this retiring generation??  S&P 10,000.............

Philo Beddoe's picture

My Dad received full pension in his early fifties. That, and they gave him 2.5 years salary that they rolled into his IRA.   

Born at the right time, baby. 

rccalhoun's picture

i jumped off this train when the dow first hit 10,000 in 1999.  was i 15 years early?

WTFRLY's picture

US Citizen, Press TV reporter dead in car crash near Syria 2 days after Turkey calls her a spy

Rememberweimar's picture

You mean they steal $200 Billion per quarter...

Leonardo Fibonacci2's picture

All your doomsday crap and the markets are bullish!! WTF  I sold my GILD at $95 and its at $105.  You basturds!

Majestic12's picture

"You mean they steal $200 Billion per quarter..."

No, they bill it to "you", Mr. Tax payer....

This can go on forever...until they really get pissed that YOU are NOT paying YOUR deadbeat!

Thank God that my town of 40K people has 4 MRAPs!!!!

Knock, knock....."collections" calling....

daveO's picture

Only $5333.33/yr per each of 150m working Americans. Debt slavery!

Seasmoke's picture

i say 16 years too early.....but its coming up fast !!!

Skateboarder's picture

No more being born at the right time in an open-loop radiation and poison world.

Unfortunately, advertised reality says everything is fine. I wonder why more and more people around me are getting cancer...

Stoploss's picture

Those parasites are the reason you have the opportunity to come here and whine about it.

Blaming somebody else is always the easiest thing to do.


What would happen if there was no money to pay out to this retiring generation??

You probably wouldn't be here right now which is not all that bad. 

PAPA ROACH's picture

Bullshit. Pretty much everyone BUT boomers view them as a negative legacy. Just a generic search of "legacy of baby boomer generation" yields something other than what you seem to think-

froze25's picture

Agreed, Bull Shit, they have completely let the Liberatard Bull shit happen unchecked.  They are the "If it feels good do it" generation.  They have abandoned thier kids and self responsiblity.  The men of that generation are nothing but boys in mens bodies.  The women are more concerned with fashion then thier families.  Ultra high divorce rate, undisiplined children.  That generation was truely wrecked by the establishments bull shit.  They are the number one user of "Pain killers" and anti depresants.  Truely a lost generation, sad.

The9thDoctor's picture

I have a lot of respect for the Silent Generation and the Greatest Generation before them. Not so much for their brat boomer offspring.

/sort of sarc, lol

MrPalladium's picture

Look jerk off!!

I was born in 1947, at the lead edge of the baby boom. I campaigned against the ponzi bullshit starting in 1962 at age 14 and continuously up to the present. All throughout that period the cultural marxists kept increasing the size of the FSA primarily with the Election of LBJ, the man who single handedly (along with Democrat control of both houses of congress) destroyed America with his massive increase in the welfare state.

Like half of my generation, we never wanted any of this FSA ponzi!! But our votes might as well never have been counted.

But then I have been married to the same woman for 40 years, and had 4 children, now young adults for whom I have provided substantial financial assistance. So perhaps I am not a member of the baby boom generation as you define it!!

So what are you going to do about the baby boom generation? Kill us all? (good luck with that!) Repeal social security and force the vast majority of those born between 1945 and 1964 to move in with their kids??

So how do you explain your own relationships?? Are you parentless?? Childless?? Or just an angry, unfocused asshole.

VWAndy's picture

Why is your well being my problem? Or my kids problem? Clean up your own mess. I kind of have enough on my plate now thank you very much.

Osmium's picture

Why is putting your kids through school my problem?  Why do my taxes go to support your kids?  I don't have any children.

armageddon addahere's picture

If your mom loses her house whose basement are you going to live in?

daveO's picture

Central Banks are already taking care of it. They'll still get SS, it'll just buy less and less. Most of the BB's, and nearly (80%) all the ones of which I'm related, are hopelessly brainwashed by TeeVee. They're clueless. I'm sure when the gov. tells them to drop dead, they will obey.

PrecipiceWatching's picture

My ass.



Don't blame the entire BB generation for this Socialist Ponzi scheme, engineered long before they were born.


Every Boomer I know, would be happy just to receive the exact money out, that they've paid in over decades of paycheck withdrawls.


I'm sorry the younger generations are screwed.  My kids are part of that, so why would I be happy with the fuck-over young people are getting because of evil, thieving, MF Collectivists.


We saw this shit going down, this demographic nightmare, probably before you were born, and not a damn thing was done about it.  Bush tried to implement, at least a semblance toward sanity, with individual SS accounts, back in 2003, but was promptly mowed down by the Communists.

Dr. Richard Head's picture

I agree with everything you said except for Bush trying to implement some sanity with individual SS accounts.  That money would still be intested where exactly?  Equities and bonds, which are manipulated whichever way you slice it. 

The point is the system is a shame.  I am doing very well for my age of 36, but I happened upon a family business that I was instrumental in growing beyond our wildest dreams.  I don't know what to do to save for my future. I basically look at life on a month-by-month basis because of the way things are relating to money, which means I am enjoying the fruits of my labor now.  Not sure what else to do, but damnit do I wish I could opt out of SS.

Hal n back's picture

I started working after college in 1970--first day on job I had to sign w-4 and the discussion, at a CPA firm turned to that we would never see this money withheld for social security-which if I recall was 4.2% on 4,800 a year ( I started at $10,200 per year.


The problem is our fault collectively--we should be beating on the heads of our respective elected officials to do somehtign-10-20 30 and 40 years ago and today


rather we get one party saying they want to keep ss and medicare the way they are--and if you look , if you ar ein medicare or soc sec for 10 years when you hit 65 you get money, mostly disproportionate to what you and your employer have put in


i get the equivalent of 3.8% on the money I put in, but will never see the principal--a hell of a ponzi scheme. I beleive new immigrants regardless of where they come from if their 10 yeears are at max pay in for soc sec they get a huge disproportionate payout. Someone at half the max gets disproportionate large payout.


depending where you stand its fair or not.One thing though-


it sure as hell is not affordable.


one day we wil wake up and the system shuts down, even with the ability to covertly print, or as I like to say, counterfeit money.


Southside Stacker's picture

I have to agree with Precipice.  You cannot put all of the blame of the BB generation or generalize that all of us are the same.  I think the die may have been cast long before they arrived on the scene with two events--the passage of the 16th Amendment to the Constitution (income tax) and the passage of the Social Security law in 1935.  I would definitely like to receive the exact amount of money that was stolen from me year by year and placed in a lockbox (sarc).  Still I think plenty of blame can be placed on certain members of this generation of which I am a part.  Some of us complained and attempted to resist but we have been shouted down, demeaned and marginalized.  Even the political party that purported to be fiscally conservative has been coopted by the plutocrats, and while Bush did attempt half-heartedly to create individual accounts, much of the rest of what he did was more of the big, deficit spending same (see Prescription Drug benefit).  Of course, blame can also be laid at the feet of Gen X who voted in large numbers for Obozo, whose mere presence makes any sort of reasonable solution nigh on to impossible. I see the leadership, some of whom I personally knew in school, serving the oligarchy and not addressing commonsense solutions to the problem--like spending less money. Now we are faced with close to 50% of the population getting some form of govermental assistance and a banking system that is leaking oil.  I am afraid that a catastrophic systemic failure is baked into the cake, with plenty of blame to go round. 

agstacks's picture

"Every Boomer I know, would be happy just to receive the exact money out, that they've paid in over decades of paycheck withdrawls"

Here is the problem; the money is gone.  You were stolen from.  The lockbox was not locked.  Now what do I have to do with that?  It's like saying "I'm not asking for a lot, I just expect to get everything back from that Bernie Madoff investment I made a few decades ago." 

It's not like that money is just sitting there and we need to decide how it's spent, it's gone.  Maybe you can help us find a buyer of 5 trillion in US treasuries?  If you can, you can have your money (and it can't be The Fed or "Belgium".)

malek's picture

 would be happy just to receive the exact money out

Isn't that true for every Ponzi participant, towards the end?

lasvegaspersona's picture


you seem pretty sure that a generation that is about to get royally screwed planned this outcome for themselves. I suggest a bit more thought on this matter might benefit your view.

PAPA ROACH's picture

This clip of beavis and butthead explain how these promises they made to themselves work. They sell school chocolate, and keep passing the same $2 back and forth to each other buying each others chocolate. In the end, 200 candy bars have been eaten, and there is only $2 to turn in.

Philo Beddoe's picture

This is the hardest game to play. 

1. Live without debt. 

2. Do not count on or live with any government financial assistance of any kind. 

Looks difficult. It is. 


Kirk2NCC1701's picture

And yet, and yet... these same Plebeian masses will feel guilty to honor a debt that has no honor.

E.g. If you come up with 5-20% down payment for a house, and pay PITI for a few years but then lose your job, you also lose the house and your down payment. Think Nevada, Florida...

The banks, who have simply conjured your Mortgage into existence, will have made profits. And because your early and uncontrolled exit caused them to not make the maximum profit, they will whack your Debt-worthiness Index (aka FICO credit score).

And the irony continues... Chances are that you have been so indoctrinated/brainwashed, that after losing your job, your home and your credit rating, you'll feel ashamed and guilty about all this. Odds are that you'll feel ashamed of your poor credit score.

Of course should you "choose" to remain an avid Modern Consumer, whatever (car?) loan you get, will have such high interest/Usury rates, that virtually ensures that you remain on the Plebeian debt treadmill. "Bad peasant, bad peasant!"

lasvegaspersona's picture

The banks did not 'conjure'. They took your word, printed on paper and signed by you (a very good fellow we are all certain) and the rest of the world, knowing that you are a reliable person, used this promise you made, as being as good as cash itself. Eventually the world is waiting for you to deliver the cash back into the system.

We beg, as a whole, for credit. When it becomes difficult to pay the money back we scream that the evil bankers tricked us. It is as though we never could foresee a day when repayment might be hard.

This has not changed in 300 years.

detached.amusement's picture

Are you retarded?  They conjure up the money they loan you out of thing fucking air and give some stupid lip service to "reserve requirement"


Why do they get to invent the money to loan you, but you have to pay it back with your real labor?

Jahbulon's picture one gets hurt, and we get free mana from heaven forever.

In for a penny, in for a pound.

Jaspergers's picture

It exists in the sense of a wealth transfer (from the world to stock owners and specifically.. well, you know), but yeah 1 penny is also accurate

dontgoforit's picture

The world on a Gold MasterCard with no limit and no repayment plan.

spastic_colon's picture

that much doesn't need to exist...they can just print $39.99 to give to gartman to call the start of a bear market like he did last week with uncanny timing of the V

doctor10's picture

So this is the "real"  cost of keeping the FSA in line?

Skateboarder's picture

The "real" cost is the complete dissolution of self-reliance and self-sustainability.

Croesus's picture

Money well-spent </sarc> 

Nue's picture

Actually that 200B is subracted from the economy in the form of currency devaulation. But that only hurts the poor and the middle class and well hey who gives a shit.

TeamDepends's picture

The house of fiat still stands
But a hard wind 'gon blow

orangegeek's picture

$200B notional.  Leveraged 40X is more realistic.

pods's picture

So who thought it was a good idea to use private script for our money supply?


TeamDepends's picture

(Voice of Churchlady): SATAN!

dontgoforit's picture

Sure looks like a set-up.  When the sheelple refuse to pay, they will crush the sheeple wealth, take it, and shoot the sheep.