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How The ECB's QE Is About To Send The Most Deflationary Signal Ever
With every passing day, negative 10Y yields across the developed world's bond market, and not just Switzerland, increasingly appear to be a question of when not if. Paradoxically, the main reason for this long-end deflationary crunch will be an action that the ECB will undertake in three days that is designed to spur inflation, and yet what it will achieve is to send the most deflationary signal possible: a global bond market in which bondholders pay sovereign issuers to issue debt.
Needless to say this is precisely the opposite of what central banks should be doing in their quest to (hyper)inflate away debt.
And the clearest indication of precisely what the ECB will do the inventory of available global G3 (US+European & UK+Japanese) collateral, is the following chart from Credit Suisse.
As the Swiss bank explains, "Despite the Fed ending its purchase programme, an ECB sovereign QE would reduce the available share of G3+ sovereign duration (Treasuries, Gilts, JGBs and European Government Debt) for the market to an all-time low. The ECB has the potential to take out up to 5% of G3+ duration of the market if it embarks on a €1 trillion programme. This could keep interest rates globally at very low levels despite a potential Fed policy tightening in 2015 – particularly in the longer end."
The share of duration outstanding in USTs should rise back towards mid-2012 levels, while the ECB could substantially eat into the available EUR duration (see Exhibit 3). Considering duration differentials in a vacuum, one might assume that US government issues should underperform their European and Japanese counterparts.
What this means for stocks is unclear now that virtually every metric is screaming record overbought territory, especially with GAAP EPS in 2014 down from 2013, and - assuming the crude collapse persists - 2015 earnings will be far lower than 2014. However, there is little debate in what it means for bonds:
... the chances of an extension in the search for yield trade could see this [UST/Bund] spread move toward 110bps, suggesting a test of the 1.60% level in 10-year Treasury yields, which was the lower end of the 2012-2013 range.
Congratulations ECB: in your attempt to spur inflation you are about to unleash the most deflationary signal the financial world has ever seen: global NIRP.
And yes, for those wondering, the inevitable conclusion of this silly game is what we said would happen from day one back in March 2009: the central banks, who can create both electronic and paper money with a key stroke, will do just that, and then - as Bernanke conveniently predicted - literally paradrop it ouf of a helicopter, in their last ditch effort to prevent a global deflationary implosion.
This too is no longer a question of if, but when.
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Of course the ECB also has another problem. What if they break out their "bazooka" and their QE turns out to be another politically correct air soft gun. If they shoot too high, the extend the NIRP and trigger a massive deflationary firestorm. If they shoot too low and only buy around 100-250 million Euros worth per year, then faith in the ECB and the currency collapses and they will have to implement capital controls to prevent a massive flight of capital from the continent.
It's not deflationary for housing. This could pull in one more wave of suckers,
just in time to be slaughtered with the first upticks in short rates.
Aww, don't be a buzzkill. This party is just getting started. Look! The orchestra is assembled on the top deck and starting to play!
Come on relax... It'll be alright... Look, the icebergs sure look wonderful in the glistening moonlight tonight...
Draghi's best option is now to forgo QE for the immediate future, although there ha not been any indication he is man enough to do it.
Maybe 3rd class will want to join the dance at some point.
When you step back, you understand these banks have made horrible decisions, decisions made to save themselves.
No price discovery. No decent interest on investments. These banks are so bankrupt they have to reduce interest because they have shattered markets and blown the prices of everything up with fiat issuance to try and continue their plan of Rape and Pillage.
Only a small increase in interest will blow up the UST and the USG's easy money policy.
2008 showed us that the Banksters control the western governments. In Reality, they would have been broken into smaller units, regulation like Glass Steagall would have returned, there would have been massive economic hurt to everyone except the "1%."
But, it would have placed Finance on a more honest and straight path.
It did not happen. We are going to reap a Whirlwind.
Accept that Fact and make plans. There is a chance We The People can force a return to a more honest system, but it will be painful. I am prepared to accept it; I do not want my progeny to be enslaved for the goal of "Globalism" and its premise of a one-world money and slavery!
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In an attempt to place the world under One Financial Authority, they have opened Pandora's Box.
Nations exist for a reason! These Zionist Cockroaches and their Associates need to be before the ICC.
The Zionist control of Banking needs to be shattered. The Zionist plan for the disruption of nation-states via uncontrolled immigration must cease. Diversity is no more than a plot to disrupt countries and allow the Zionist to take control. Look at a map of Israel over the last 30 years: Non-Jews have been isolated and contained in Ghettos, as the Jews were in WW2.
When you research and find the media, the banks, the politicians have all been subsumed to the Zionist goal of a One-World Government, it is time to fight back.
The Zionists' Goal is a copy of NAZI Germany's Lebensraum. Force the Muslims to fight each other, encourage them to attack western targets and increase fascism in the West.
Yet one must realize the Jew is not the enemy. He is separate from the Zionist, as demonstrations in Israel have shown.
God promised one day that Israel would be restored: the Zionists have taken advantage of the Lord's Promise and turned it into a form of global fascism and Evil. They are Khazars, not Biblical Jews.
The System of the Zionists must be Shattered. The individuals who have promoted these Policies must be rounded up and Tried in Court. Realize the Truth: you do not have to be Jewish to be a Zionist. You only have to sell your Soul to Satan.
By your wisdom and your understanding you have made wealth for yourself, and have gathered gold and silver into your treasuries;
Like your bible verses. Not sure how they will be received. As each day goes by I realize our only hope is Christ
Amen.
Whatever your Faith- or just commitment to Honest Principles-- will see you through a lot more turmoil.
There are decent people in America. Find them, in your town and neighborhood. At this point, make acquaintances and then prepare some plans...
it would seem they should end the negative rate poicy at the same time as they begin QE... so banks can sell the ECB the bonds and park some of them money back with the ECB at zero (like FED/BOJ/BOE) if they leave NIRP with large bond buying the banks level to sell should be more negative than the ECB rates ie they might simply not sell much because after they sell they have to receive negative rates on the proceeds that arnt reinvested some where.
So ending NIRP with ECB buying would make sense but guess they wont do that..
You're assuming the Europeans have an actual plan. Draghi all but admitted he's just making it all up as he goes along.
And I set my mind to know wisdom and to know madness and folly; I realized that this also is striving after wind. 18Because in much wisdom there is much grief, and increasing knowledge results in increasing pain.
Ecclesiastes 1:18
Fuckin-A
I remember the good old days when ECB QE was never going to happen.
What's not supposed to happen after this?
Barry coming out of the closet;)
Mike's back shaving live on PPV.
Ellen DeGeneres going back in the closet???
Greece paying its debts???
The Wookie revealing finally she is a Man.
The FED will never raise rates. It's completely boxed in by the other CB's.
We are much closer to QE4 than a 0.25 FF.
Agreed. I have NFI where this raising rates meme is coming from other than maybe an empty conversation piece to "support" how well the economy is doing.... an "As If"
Otherwise, it seems pure crazy to me.
Didn't the Fed originally claim they were going to raise rate in like 2010/1? And now the rest of the world has fallen off the table, but they're gonna finally raise now? Haha
You have to wonder about how they arrive at these conclusions since they will have the opposite consequences of what they are trying to do...
I think this time QE will help for about a year max, but QE will bring even more damage to economy
To date, global QE has caused global interest rates to spiral ever lower, now negative in 11 countries.
Therefore it would be logical that more QE generates increasingly more of the same result.
Insanity: "doing the same thing over and over again and expecting different results" - Einstein
QE - just a way to confiscate your money and property and bring slavery back
They are training people to fear banks, that deposit insurance is a sick joke, and that government at all levels, is the enemy.
As Dr Phil says, "How's that working for ya?"
I do not believe that there is a single person here that ever imagined the day that we would see NEGATIVE nominal interest rates.
As I said in a prior post a few days ago, I keep asking myself "This HAS to be some kind of joke".
I do wonder how long before we have negative 5% nominal interest rates?
That would do wonders for those online "calculate how much you will have for retirement" calculators.
exactly Nikkei had article out last week saying current rates basically will bankrupt pension funds.. if 5y rates is sub 0.% the Toyota or honda will issue at 0.25% ie still too small .. dividends on elevetated stocks too small so as redemtions increase due to more retiring people and no ability to earn any fixed income return that maturity match;s the policies they will go under its just a matter of time. the Govt will have more people to pay for and worse debt...
Japan=USA
My question is "what if the CB'ers succeed?". In other words
WHAT ABOUT INFLATION?
Japan, China, Russia, Venezuela, Argentina now " the European Union."
We've had a nasty inflation in the USA that has BARELY abated the past six weeks.
Take a look at the MASS of defaults: Detroit, Bakersfield, who knows what next.
And the USA is SWIMMING in liquidity....dollar is surging, equities at an all time high.
At some point that debt will not be bought.
Certainly not by the USA anytime soon.
We've gone through 8 years of economic hell because of these clowns. Don't get me wrong I love the dollar here...but investing in the USA outside of treasuries is a BAD IDEA in my book....at least until Spring.
Gold had this same move to start last year I might add....
Unfortunately, we all have to play the CB game. We have to work, pay our debts, save, find shelter, eat, etc. is the best we can do to just get by?
D-FENS or Deflation? Zombified financial institutions are falling down.
The shit spattered EU needs an enema. Any voluneteers?
Let me know when Benanke, um, I mean Yellen, will drop the cash from their helichopter. If the central banks are all going to implode we might as well have a big party. Luckily the idiot bankers gave us plenty of time to prepare.
so much speculation yet so much certainty Draghi will embark on a massive QE to fight both dismal economic growth brought about by EU austerity measures and national indebteness and deflation. The problem is that EU is not the USA and that the banks are not structured in the same way... probably wrong medicine for the patient and we are really embarking in unchartered territory. The other side of the coin here is that this will give a lot of room for Federal Reserve to leave monetary policy alone and see how the ECB program impacts the US. My take is that if the EU banks take the money from the ECB, their best bet is investing in the US... So this will turn the EU QE into a US QE...
The SNB peg shocker was Draghi's stage one QE. My guess is stage two will be a $5-600 Billion Euro heli drop while stopping NIRP. Then my guess is he'll be pushing the politicians in the UK EU and uS to get a trade deal in the books to stimulate growth through a structural solution. That's unless he miscalculated and sends Germany into the arms of BRICS in which case he'll blown up the western world.
So "lenders don't want to take haircuts", eh? Let's get this straight. The governments and banks of the world have glamorized the hell out of debt for decades, created endless programs to convince everyone to get as deep in debt as they possibly can whether they have the income [and prospects] to repay that debt or not, and here we are with billions of hours of TV, radio, bankster and government hand-wringing about how to get people to borrow and spend even more "to improve the economy".
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ENOUGH ALREADY
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The cretins who caused this problem know the fundamental facts:
#1: When some individual (or government) borrows, they can spend what the borrowed in the short term (which has the appearance of "boosting the economy"). Borrow and spend has this appearance because the sleazy liars who promote this world-view absolutely, positively know-for-certain that borrowing to spend now does NOT improve the economy, because that debt hangs a noose and lead weight around the neck of the borrower for many decades as the borrower repays the loan AND interest.
Which means, every dollar borrowed is a net LOSS to the economy... the only exception being an infinitesimal percentage of total borrowing that is spent to expand productive capacity in cases where demand greatly exceeds supply.
#2: Once a population (or government) is loaded down with debt, no possible way exists to avoid the economy paying the price... which means, slowing down by more than the amount it sped up while the borrowers were out enjoying their drunken spending sprees.
#3: And yet, even knowing this, the cretins who caused the problem (those who promoted the crap out of debt (especially for individuals and government, and those who lent to individuals and government) now create new machines designed with extreme pressure to force-feed even more debt over top of individuals and governments already buried in debt.
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And the entire mainstream media, all around the world, completely ignore or actively hide these most fundamental and relevant facts in order to pretend given more extreme doses of poison to a patient already suffering from poisoning is somehow the only possible course of action.
Of course the mainstream media is merely the public relations mouthpiece for the lenders, who are the central banks of the world, as well as the banks and individual banksters who own the central banks of the world. Which explains why ALL we hear (except from ZH and a few other semi-rational sources sometimes) is how the only action is VASTLY MORE DEBT. And not just VASTLY MORE DEBT, but ever increasingly astronomical doses of VASTLY MORE DEBT as time passes.
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Some aliens from Zeta Reticuli wondered why in the universe lenders would continue to lend to individuals and governments already utterly buried in debt?
We had to give them a short course in "human insanity and delusion", including the chapter where some humans get to create "money" out of vacuum (not even "thin air", any more, all of which has been consumed already) to loan to anyone they can convince to borrow. After a few more days of shocked and astonished looks and head-shaking as we explain how human are willing to sell their valuable goods and goodies for worthless pieces of paper (or hidden computer bits somewhere), they just give up and leave after surrounding earth with warning markers to prevent any innocent aliens from getting too close and risking whatever disease causes such malevolent brain damage.
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But the last question from the aliens was a unanimous one. If we know these lenders are destroying mankind, why do we play their insane game? And further, why do people actually believe their insane claims that "taking more poison will cure the disease, when obviously by its nature has to make the disease worse?".
The answer, of course, sent them running away from this solar system as quickly as their very impressive thrust generators could carry them. That answer was, of course, "the end game"... what the banksters had in mind all along. And that is, to get humans so utterly buried in debt, they foreclose on the entire planet, and evict the humans, leaving planet earth all and exclusively for themselves.
The aliens really didn't understand. They could see that we completely understood what was happening... "so why doesn't everyone else?". They especially just couldn't comprehend why some of us who thoroughly understand the scam, don't just get up there and expose the racket.
Which is when we explained how their scheme works. We explained how one of the first things the predator-banksters did with the first repayments of the earliest debts was to buy all large media corporations, and bribe politicians. And thus, pretty much all humans hear are the lies promoted by the predators-that-be.
The aliens never could comprehend the whole "government" and "politician" concept... they simply couldn't imagine how any individual could possibly believe that any other individual could obligate them or control them. The aliens just kept shaking their heads and repeating, "but... that's just insane". I explained that perhaps 0.001% of us understand that, but with 99.999% of the population backing the human predators, us 0.001% have little chance.
Funny though... the aliens really do believe there must be some kind of virus or bacteria or chemical pollution causing this overwhelming brain damage. We said we don't think so, but when they asked whether we could detect any "atmospheric seeding", we had to admit chem-trails could possibly be a factor. But we continued to promote our best theory, which is simply the power of endless repetition (nagging) and brainwashing. We guess the aliens aren't so easily suckered, because they just couldn't believe this theory.
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From the perspective of these aliens, we'd have to speculate how the past 100 or 200 or 500 years of long-term history of earth might appear. For sure, they'd probably call that period the era of planetary mass insanity.
good post. though with your usual fallacy of taking your situation as a standard for all humanity
you are correct, the aliens of Zeta Reticuli would hold us for mad. those aliens never experienced raw, direct predation, I suppose. like a foreign invasion
but humans on this planet experienced and still experience invasion. hundreds of them. and then, that whole "government" and "politician" concept makes more sense
imagine yourself only one moment as someone between the colliding fronts of two armies, let's say in the territories formerly belonging to Syria, or in WWII
and "marauding" bands of invaders or pirates or "gentlemen looking for adventure" or kidnapping and slaving raiders probably predated the whole concept, and are most probably the cause for the invention of government in the first place
evidence: every time a government fails, borders crumble and you can witness the dislocation of huge masses of people fleeing the fresh invaders/occupiers
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to come back to the ECB: that damn QE is utterly unnecessary. only two reasons to do it: to stop the megabanks shouting for it and to stop the politicians shouting for "something to be done". both reasons suck
As I keep saying, the answer to predation is... well... not exactly predation, but pretty close. The answer is: to evade harm if possible, self-defense if you are extremely well prepared and/or have a horde of friend-collaborator-neighbors will a self-defense pact, or otherwise, just go out and exterminate predators from time to time to keep their numbers very low to zero.
The problem is, the predators regularly practice violence and threat of violence, and the prey don't. What other outcomes could possibly occur besides global enslavement? Answer: none.
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Actually, no need to worry about "invaders" when nobody takes seriously foolish fictional notions like those "border" thingies. If someone wants to travel on the earth, more power to them.
To be sure, if they want to steal your stuff, well... that's what the mutual defense arrangement with your neighbors is for. And make no mistake, it is a lot easier to fight on your own well-known, well-prepared, well-understood territory than to be an invader looking for a free lunch.
Which reminds me of another approach --- offer them free lunch. Invite them in, sit them right down at your nicest picnic tables and feed them a very big, very yummy, very special meal, served by your most beautiful gals. Shortly thereafter... well... let's just say you better have lots of shovels or backhoes, because you'll have a huge number of bodies to bury.
Yes indeed! When people start to believe nonsense like "someone else will take care of me [and everyone else]", they are soon to become enslaved prey.
Hey, humanity can figure out what to do for themselves! They sure as hell don't want to hear what I think, or what any other sane individual thinks. But that's okay, because actions have consequences, and they'll enjoy/bare/suffer the consequences of their own actions (and inactions) soon enough. Very soon enough.
And as our good alien friends said as they shook their heads and turned to leave, "good riddins".
This all reminds me of the time I was working on the horse farm and drove the tractor and manure spreader across the field with the wind to my face. But then as I turned the corner and proceeded back, I got met by a category 5 shitstorm. I think NIRP is turning the corner here...
Apt Analogy.....