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A Bond Market Revolt is Fast Approaching
The ECB launched its QE program this week, proving once and again that the Central Bankers are clueless as to how to create any growth.
There is no evidence that QE is capable of generating GDP growth or employment growth.
1. The UK launched a QE program equal to 24% of its GDP. Neither GDP nor employment moved significantly.
2. The Bank of Japan has engaged in QE programs equal to over 50% of its GDP in the last few decades: both GDP growth and job growth remain anemic there.
3. And in the US, the Fed’s own research shows that its $4 trillion in QE only lowered unemployment by 0.13%.
So why are Central Banks launching QE?
The answer is simply, to try to stop the bond bubble from exploding.
First of all, this bubble is larger than anything the world has ever seen. All told, there are $100 trillion in bonds in existence.
A little over a third of this is in the US. About half comes from developed nations outside of the US. And finally, emerging markets make up the remaining 14%.
The size of the bond bubble alone should be enough to give pause.
However, when you consider that these bonds are pledged as collateral for other securities (usually over-the-counter derivatives) the full impact of the bond bubble explodes higher to $555 TRILLION.
To put this into perspective, the Credit Default Swap (CDS) market that nearly took down the financial system in 2008 was only a tenth of this ($50-$60 trillion).
This is why Central Banks have cut rates to zero or even negative: they are trying desperately to keep insolvent countries from defaulting on their debt. Should interest rates rise, then very quickly numerous nations would be bankrupt.
At that point you’re triggering a collateral shortage and margin calls on those $555 trillion derivatives.
By the look of things, we’re not too far off from this. It’s only March of this year and already we’ve seen over 20 interest rate cuts from Central Banks around the world. These are not moves designed to generate growth… these are acts of desperation.
Interest rates are NEGATIVE on two-year bonds in seven different EU countries alone. Globally, bond yields on nearly 50% of sovereign bonds are below 1%.
Yields can always go lower… but at some point investors will have to ask, “how much am I willing to pay the Government to sit on my money? 1%? 2%? 3%?”
Eventually there will be a bond market revolt. When that happens, the next round of the crisis… the round to which 2008 was a warm-up… will hit.
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Best Regards
Phoenix Capital Research
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The 897th time that Phoenix has guaranteed that the sky is falling... They make chicken little look like a rank amateur.
The GDP numbers are bunk because the value of money is declining.
An apple grown and sold for 25cnts, adds that value to GDP..plus the share of shipper, packager, shipper, profit, etc.
Devalue the money by 50% and then you have an apple grown and sold for 50cnts and adds THAT amount to GDP plus the other stuff.
Presto!!! A nice rise in GDP!!!
Except its the SAME F*****G APPLE ! !
...there is NO extra wealth created by any of that.
The Bond Market is Fast Approaching "Revolting"
This has become big enough a deal that mainstream economists are being asked by their paymasters to figure out how large a "Gesell tax" they can get away with without the proles deciding they're better off with a safe than a bank account. So far, most of them have been coming up with figures in the two to three per cent range.
Given that where I live cheque-cashing places usually take 2.5 per cent of the face value of the cheque, that's probably not far off.
Is Phoenix Capitol run by mellinials? THey have been wrong more times than an Austin Gay trying to be trenty buying somethign from a food truck.....
"There is no evidence that QE is capable of generating GDP growth"
Not so sure about that--if new money (or credit) enters into the economy and gets spent, GDP will measure that. Supposedly GDP accounts for "inflation", but if by some chance price increases were underreported...
The real problem is that GDP is decoupled from real productivity. Example, TPTB spend some of that bond money to build a tank to fight another imaginary enemy. That counts positively to GDP, even though it's a big misallocation of real resources that makes society poorer.
What's with the thumbs down--do you guys think that GDP is a real measure of wealth and productivity?
I have been observing the same mess Phoenix is describing here, and I have no idea how anyone can argue with their point(s). They, unfortunately, are spot on.
What many don't seem to realize is, regardless of the nature of a central bank--anywhere--public, private, or a hybrid, they are the emanators of public currency. EVERY unit they officially bring into the world (be it in physical form or digital form) stands with every other unit they've bequeathed before it. It does NOT matter where that unit is parked, in circulation or not, it EXISTS.
Secondly, it does NOT matter WHO buys a government bond. It is debt YOU owe in principle, and WITH interest. Just saying a central bank holds a bond does NOT reduce or eliminate that responsibility. It is debt that must be repaid...period.
And central banks are not the only holders of the bond standing for the currency they created (because a government ceded them the power to do so), in lending that new currency to that government. Government also sells the debt instruments to raise additional (already existing currency) from private buyers of their bonds as well. It's all debt. It's YOUR debt...with interest.
Third, it does not matter that a central bank or a government "rolls" debt "over" when principals are owed on maturing bonds. Principals are paid out of the proceeds of new debt used to retire the old, and THAT debt will be created on the-then prevailing terms (years to maturity and current interest rates). Sometimes the process of retiring old bonds actually results in more expensive debt, but almost NEVER an overall reduced debt load.
Even IF a central bank uses the proceeds of maturing bonds to purchase new bonds, to minimize additions to their portfolio, they're still buying debt. NEW debt at that. They are not subtracting extant currency from the money supply, originally brought into being to buy the original bonds, thereby strengthening the currency and reducing overall debt outstanding. They merely use that same currency (if not more of it) to enable more government debt...
Fourth, debt is mostly needed by government for spending well beyond its means (deficit financing). Is what it's spending this missing national income on worth it? It better be. YOU are paying for it, and will be for a very long time.
And why is that national income missing in the first place? Lost income (and associated taxes) due to shortsighted corporate outsourcing of western middle class incomes and, too many deductions and tax credits within an incomprehensibe tax code?
And finally, derivatives...
Phoenix doesn't raise this issue without cause. They are correct.
ANYONE who speciously tries to minimize the impending bond (sovereign and others) disaster with a misstating of the mechanics of these does a tremendous disservice to all of those ultimately responsible for them.
And that is...US.
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Your money is an illusion.
Well its value sure is.
And right there in bold is the delusion under which you labor. When push comes to shove, you will find that it isn't your money. If you try to exit the system, punitive measures will be levied on you to make sure you pay more than you would have staying in.
If it doesn't make much sense its probably nonsense.
http://www.debtcrash.report/entry/i-bought-what
i AM SO TIRED OF FINANCIAL COMMENTATORS CALLING CENTRAL BANKS AND THEIR ACTIONS "CLUELESS", "INCOMPETENT", "STUPID", WHEN IHOSE ADJECTIVES PRECISELY DESCRIBE THESE SCRIBBLERS. THE BANKSTER CARTEL IS AND ALWAYS HAS ACHIEVED EXACTLY THAT RESULT WHICH IS THE INTENTION OF ALL OF ITS ACTIONS.
SIMPLY FOLLOW THE MONEY.
WHO BENEFITS?
WHO IS PAYING FOR THAT GARGANTUAN TRANSFER OF WEALTH FROM ONE CLASS TO ANOTHER?
WHY DO WE, COLLECTIVELY, THE VICTIMS OF THIS THEFT DANCE AROUND THE STARK TRUTH OF THE MATTER?
Yup...FOLLOW THE MONEY.
Once you understand this basic concept a lot of complicated shit suddenly becomes a whole lot simpler.
Agreed. People often confuse appearing to not know what is going on by their actions and press releases with actual stupidity and incompetence. They, and I mean the major central banks, know exactly what they are doing. Some of the smaller central banks just have to react to what the big guys are doing.
Japan does seem pretty clueless I have to admit.
Graham is right and wrong all at once...again. Right in identifying a problem and wrong in not acknowledging no market forces will be allowed to find price discovery or supply / demand intersections. TPTB are all in now...no half measures.
Might want to read the following...
Treasury Buying - Pyramid, Ponzi, or GDP Crushing Paradox???
http://econimica.blogspot.com/2015/03/treasury-buying-pyramid-ponzi-or-gdp.html
My thinking exactly. PNAC-like markets: total dominance is the goal; history means nothing; truth is what we say it is; POWER is reality.
CHAOS!!!!!!
I don't believe a bond revolt is imminent, but it will happen at some point. This is all good info for when that day comes
http://www.debtcrash.report/entry/i-bought-what
http://www.debtcrash.report/entry/debt-taken-on-by-fools
+1...immiment....NOT!
If there were any "imminencey" to this cluster fuck it would have already happened....No later than when the "crisis" happened with European sovereign debt, years ago.
Yeah, it's not likely in the short term (6 months) but as Draghi does his helicopter Ben imitation everybody is going to start noticing that the effect is the opposite of what was promised. Considering the currency war that is warming up, things will really start to deteriorate toward the end of the year and once it starts the downward journey it'll be nearly impossible to stop.
As sovereign bond yields sink below 0, we can expect the commercial banks to lower depositor interest rates to comparable levels. This is possible because cash holders will have no other alternative, and the banks will not be prepared to watch deposit levels increase rapidly. For how long can any system continue to punish savers? Capital expenditures will fall below replacement levels and unemployment will soar.
lets not forget those negative mortgage rates! after all, the only thing that matters is that we pay property taxes anyways. even tho they generate more income by simply printing to oblivion