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When Even Varoufakis Mocks The QE "Wizard", The Game Is Almost Up
Last Wednesday, Mario Draghi and ECB chief economist Peter Praet had a clear message for critics of PSPP: we’ll keep printing money forever if we have to, but in the end, this is going to work. As skepticism grows regarding not only the soundness of the philosophy that underpins QE, but about whether the structure of the ECB’s asset purchase program is even viable, the central bank remains defiant to the end and indeed Praet doubled down on the rhetoric last week, noting that the ECB would “use all tools available” to ensure that “monetary dominance prevails.”
That kind of language may be good for morale in some circles, but a growing number of critics are suggesting that perhaps the world would be better off in terms of financial stability if the powers behind “monetary dominance” would let the market prevail for once so that some semblance of price discovery could begin to reassert itself. We’re a long way from that though and in fact, the outlook for euro money markets is anything but normal as Barclays made very clear last week. Here is our summary of their take on the market:
In a nutshell: short-end core paper will trade below -0.20%, extreme supply/demand imbalances will cause general collateral rates to trade through the depo rate, money market fund yields will turn decisively negative testing investor patience, and central banks had better make good on promises to make some of their inventory available for lending or risk impairing the functioning of the repo market (never a good idea)...
What should be clear from the above is that while central banks’ ability to alter inflation expectations and/or stimulate aggregate demand may be limited, their ability to distort markets, inhibit price discovery, and create systemic risk is alive and well.
Meanwhile, the bund curve has a date with outright flatness and the ECB, by driving yields on even half-decent credits negative, is setting itself up to onboard hundreds of billions in negative yielding assets onto its balance sheet, guaranteeing a loss if held to maturity and we won’t even begin to speculate on what the paper losses will look like on a trillion euro portfolio of bonds purchased at 124% of par if either the central bank loses control of the narrative or some tail event (like a Grexit, or a Podemos-inspired Spexit) triggers a repricing of periphery risk.
In sum: the world’s central banks are playing a trillion dollar/euro/yen/soon-to-be-yuan game of poker where every player at the table is pot committed and has no choice but to go all in.
If you want to understand just how precarious the situation is, just ask Greek FinMin Yanis Varoufakis, a man who knows something about how to create and aggravate precarious situations:
“I find it hard to understand how the broadening of the monetary base in our fragmented and fragmenting monetary union will transform itself into a substantial increase in productive investments. The result of this is going to be an equity run boost that will prove unsustainable.”
The irony there is that Greece could definitely use some help in the way of outside demand for its sovereign debt and by criticizing QE, the FinMin is essentially shooting himself in the foot. Varoufakis — apparently not wanting to ruin his newly minted image as a man who is loving life right now — did note that he wasn’t trying play the role of the “party pooper” (he actually said that). We, however, will play that role by pointing out that Varoufakis is exactly right when it comes to runaway QE producing unsustainable equity rallies as evidenced by the following:
Since 2010, The Bank of Japan has 'openly' - no conspiracy theory here - been a buyer of Japanese stock ETFs. Their bravado increased as the years passed and Abe pressured them from their independence to 'show' that his policies were working to the point that in September 2014, The BoJ bought a record amount of Japanese stock ETFs taking its holdings to over 1.5% of the entire market cap, surpassing Nippon Life as the largest individual holder of Japanese stocks. However, as WSJ reports, The BoJ has now gone full intervention-tard - buying Japanese stocks on 76% of the days when the market opened lower.
It’s so simple and obvious, even a Greek FinMin can figure it out.
And so can the Financial Times, where columnists are beginning to write about ECB asset purchases with a not-imperceptible hint of disdain in their voices:
The advent of negative yields for the best European government or corporate issuers is usually reported in the media as some sort of curiosity, like a bright object in the night sky that seems to be getting bigger. What it really represents is the breakdown of the policy world’s response to the global financial crisis.
A large European bank’s credit strategist told me: “We have searched through the records, and asked the ECB how they think their (asset purchase strategy) will work, and there is no evidence they know the answer.
“From a cycle perspective, the time for the ECB to carry out QE was back when asset prices were too distorted and low. But credit spreads are already low. They are chasing investors into markets that will create a problem when markets normalise. It is just perverse.”
The fiduciaries’ hunger for yield on respectable assets has also run into the requirements for banks and other market participants to put up more high quality collateral for derivatives transactions. Jeremy Stein of Harvard, when he was still a Federal Reserve governor, addressed this issue in February 2013.
Mr Stein referred to how institutions short of high quality collateral required by reform-mandated clearinghouses might get the high quality stuff by swapping, or “transforming” it, with low quality paper. As he said in the paper, these collateral transformations “reproduce some of the same unwind risks that would exist had the clearinghouse lowered its own collateral standards in the first place”, and these transactions “create additional counterparty exposures (among the market participants).”
I asked around how the Fed had followed up on Dr Stein’s curiosity about these unintended risks to the clearing and settling plumbing of the post-reform system and found that while there was some interest there was not enough systematic data gathering or dynamic modelling. For all the Fed knows, the plane is being held together by spit and baling wire.
Speaking of anecdotal, it appears that the ECB is not able to buy the European sovereigns and first class bonds it wants at the rate of purchase it intended. Instead of €50m or €100m bonds at a time, its dealers are being filled at a fraction of those levels in each buying round. Nobody wants to sell an earning asset. What will replace it?
* * *
Someone call the ECB because it looks like the game is well nigh up. Greek FinMins are taking time away from photo shoots and looting pension funds to call out QE for creating equity bubbles and the mainstream financial news media has figured out that there’s an acute collateral shortage and that buying €1.1 trillion in bonds €15 million at a time probably indicates a forced deviation from the original plan.
With lackluster economic growth, disinflation, and exploding central bank balance sheets now a staple across the developed world, we think it’s time someone tells the central banks of the world what Dorothy told Oz:
“If you were really great and powerful you’d keep your promises.”
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The ZH hit piece on Yanis yesterday sucked. All I saw was a guy on the balcony of a very modest apartment having lunch, lunch consisted of bread, salad, and fish. If that is "elite" these days then we are all screwed.
you don't need to have money to be elite, that's the problem here. You calling wrong men elite....
Banksters and corrupt governments are not elite. PERIOD. They are terrorists and we are hostages
As I said here before, the ECB can buy my old truck for some high quality collateral in their QE for only $100,000
And at least it runs!
Then every old truck that runs would cost at least $100,000
Wait until an EMP event. Then they'll cost a lot more than that.
Paranoia.
Yup. It's the new look of the 1% that the mob can blame for taking their free shit.
Fuck Varoufakis. Sellout from the beginning.
No worry, he's not part of 'the elite', he's going to be the rag-doll of the very elite the coming month. Hope he stays on the upside.
corrected the merciless mistake.
Yes. Hopefully Yanis has Vulcan and Spartan blood to survive this mess.
Note he has a nice view of the Acropolis ruins ( ? ) from his balcony with his (very happy) wife.
So here we are and there are no easy answers, and only hard Jubilee's or Resets.
Looks like plans are to have Yanis fully installed in-place as FINMIN and fully aware and awake when SHTF.
The only way for the Greek gov to survive is to leave the EU and drastically cut gov spending. No politician is ever going to do that on their own, not without having something or someone to blame the hardship on.
Yanis is very good at hiding what he is. The no tie, untucked shirt tail, flying etc., talking the right words, acting like the rebel.
He makes himself appear to be on one side of the table when his actions clearly show he was sitting on the EU/Bankers side. HIs actions contradict all the acting and statements of his pretend presentation.
Oh look everyone, some internet rando knows Yanis and his personal details.
Or maybe just like every internet rando, knows just enough to be complete dickhead.
point is, 1) you are a dickhead too, and 2, his observation is true since italian 1st minister act exactly the same when he came in charge.
poutin also appear sometimes without tie.
his observations are just corrects.
so, can you also stfu, rand-o-fuck ?
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://goo.gl/ezLA00
"Very fuk us EU is" -Varoufakis
Varoufakis translated means, much fakery.
He's looting pension funds for the bankers in Brussel, while critizing them for buying bonds, which is the only thing supporting the pension funds he's looting.
Yes.
Conundrums in the Doldrums.
2 seconds before midnight.
Varoufakis should be protecting the pension funds rather than looting them.
or he could protect the looting that supports the pensions
He would be talking out of the other side of his mouth if they said they would buy Greek bonds.
Not to mention the damage being wrought on life insurance companies, and DB Pension Schemes.
TD: "In sum: the world’s central banks are playing a trillion dollar/euro/yen/soon-to-be-yuan game of poker where every player at the table is pot committed and has no choice but to go all in."
I might be wrong, but it seems to me that...
If all the big CBs (USD, EUR, JPY, CNY) are all committed to "Go All In", then they will also be forced into pressing the Reset button simultaneously, do a pretend circular finger-pointing of blame, and usher in the SDR. IOW: When they're all to blame, No one is to blame.
p.s. If they (the G8 Oligarchs/Plutocrats) are in cahoots -- and this hypothesis is virtually impossible to prove until after the fact, when it's too late -- then this might explain why Russia has not crushed the Kiev regime financially, as flagged by myself and at least one other ZHer yesterday...
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Fri, 03/13/2015 - 19:55 | 5887384 Kirk2NCC1701
And yet Russia hasn't done the EASY thing: turned off the gas to Kiev this winter.
And then there's this puzzling gem: "Russia to provide $13.75mn as part of first IMF loan for Ukraine – finance minister"
http://rt.com/business/240517-russia-ukraine-imf-tranche/
WTF? Is the Kremlin schizoid?
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Are the masses/sheep being played by the global powers that be (the billionaire oligarchs & plutocrats), and are we simply seeing proxy wars to keep the charade going? There is simply too much schizoid and contradictory behavior to accommodate the classic East vs West paradigm.
Bottom line: Banksters and Oligarchs will seek power and profits above all, Ploticians are self-serving opportunists and whores-for-hire (stay on Gravy Train above all), and the Masses had better get their heads out of their asses. IOW...
Diversify, diversify, diversify -- to mitigate risk -- or perish. Diversify by asset classes (primary, secondary and tertiary wealth), and diversify geographically (more than one country or world region).
Russia sells gas at a discount (lower than EU prices) to Kiev while Kiev wages war on the people of EUke (it WILL restart), while Russia provides just enough arms to EUke to keep the fight going, while Russia does not simply establish a no fly zone and did not simply wipe out (easily) the heavy weapons of WUke, Russia forces EUke to accept an initial cease fire(s) that allows the WUke army to escape being wiped out but does not respond when the WUke army violates the cease fire using the very forces that Russia forced the EUke's to allow safe passage to, Russia claims to be on the side of Syria but cancelled an agreement to sell (not give) missiles to Syria, Russia sells just enough to Syria (as it did to Libya) to allow that country to fight a losing battle but takes no action to stop the mayhem, Russia presents itself as Irans friend but cancelled an agreement to sell missiles to Iran, Russia presented itself as Iraq's allie but refused to even give tactical support in either war.
Russia voted FOR sanctions against Iran the first several times. Iran's leader publically pronounced that Russia was in the process of becoming Iran's enemy and express that Russia had betrayed Iran.
The EUke's army leader said after Putin forced the first cease fire that Putin had betrayed them.
I am not sure of this but I think Russia voted for the sanctions against Syria and the sanctions that were placed on Libya as well.
Russia criticizes the overthrow of the Uke elected govt but Putin pressured/forced that govt NOT to take action to squash the mob that was commiting this crime (even killing police/security officers).
There is nothing wrong with perishing. We all will no matter how hard we try to prevent it. We cannot even control the when. What is to be will be. There is no other way. All we can do is walk the paths we choose until then.
Good luck with SDR's as a fiat money confidence builder.
99.999999999......% of the world's population doesn't have the foggiest idea of what a fu.king SDR is.
SDR is the new App for the iphone, it's how we buy things. At this point I'm pretty sure they can be talked into anything as long as it keeps the bread and circus coming.
It doesn't even have to be that successful. It simply has to give the impression to enough people so they will go along and the herds will follow. At that point they will be easily convinced to kill all who do not go along.
Good luck with your 99.999999999% of the world's population. That is not even one tenth of a human being... But I agree, SDR is just another form of fiat with the exception, it s issued not by a state but the IMF. Will they ever add revalued gold into the SDR basket ? Time will tell.
We are all screwed and I wish they would just let this game end so we can reset and let the principles of business work sgain
There's a 10% chance we go back to principles of business and economic freedom, 90% chance we go full totalitarian police state and no freedom.
Don't forget various apocolyptic scenarios. From Road Warrior to One Second After.
soooo, world wide civil war
Yes. There is a 100% chance the 90% will occur, possibly soon. Hopefully as quickly as possible and we can transit across quickly through the mess, and to what is next.
It's like late in the Third Act (or late in the 3rd Matrix Movie), and maybe there will be a way to get over and through to the next regime.
It will be chaotic and hopefully quick. Maybe with forward thinkers and the right attitude it will be as painless as possible and avoid major warfare.
Everybody in all parties (left, right, middle, libertarian,...) got us to this place. Maybe we can transcend the mess and move forward. Quicker the better.
With these massive debt levels the future can not be planned. we are somewhere over the economic cliff, and it may only be 'fixed' by Jubilee or Reset, and moving over it.
Even now, extend and pretend the debt limits. Nothing will change until there is major change.
Sadly interesting times.
The stupidity on display is mind numbing. On the one side the QE camp that argue that even though fiat currency has failed 775 times in a row this time will be different. On the other the austerity fans who have the same historic track record,- no success ever. The poor public get fed a steady stream of BS by the media as to why Greece should buckle under and follow austerity. The truth is neither QE nor austerity has any chance of working and the only way this mess will be resolved is writing off all the debt and then starting again (ideally with a global public banking system and no more banksters). Greece should declare bankruptcy and write off all its debt and lead the world out of the bankster driven nightmare we are currently experiencing.
Even if they wrote off their entire debt and started from scratch, they still couldn't afford to pay the existing pensions and other gov. promises going forward. Taxes wouldn't cover the expense. The other problem with socialist economics is High taxes slow economic activity which lowers tax revenue even further, so there's no other solution but to cut gov spending. This is the same problem with all the welfare states of the West, not just Greece. They'd rather take you all to war then admit a system failure.
If you look at what happened in the US under public banking the profits from the banks meant no income tax was needed (Pennsylvania). The idea is linking the issuance of money to productivity, issuing interest free money to fund infrastructure projects and solve unemployment and retirement and health funding and issuing interest bearing debt on property lending to keep the money supply under control. It transformed the US from bamkrupt to the strongest economy on earth in four years last time it was tried.
"The idea is linking the issuance of money to productivity, issuing interest free money to fund infrastructure projects and solve unemployment and retirement and health funding and issuing interest bearing debt on property lending to keep the money supply under control."
That's just the same central planning we have now with a "better" way of the gov spending borrowed money. After a few elections someone else will think their way of spending gov money is a better idea. You miss the point, which is that you can't "issue" new currency without creating new "debt" or devaluing your existing currency. The US and most of the developed world is in a "debt" crisis. Fiat currencies are imploding because the govs cannot collect enough tax to ever pay down the borrowed money. That's why varoufakis is going after pensions and taxes. They and most of the west became indebted because we lived for many years and made many promises to people that is beyond what the countrys' actual production or GDP, could afford. In reality most of the west is broke like greece and the old welfare state models are failing.
It is you who miss the point which is that money that has no interest attached to it is not debt. Public banking means that the money issued is not borrowed and history shows that this approach results in human beings thriving. In the middle ages there were no poor as we have them today, a laborer could support his family for the year by working 14 weeks and there was so much leisure time all the great cathedrals were built by volunteers. The problem is private banlk usury, which has been illegal for much of history and should still be. As Thomas Jefferson pointed out 200 years ago."If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered”.
the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered”.
So you would replace banksters with a global banking system and declare bankruptcy? Seriously?
Not a single global system. Centralisation of power leads to tyranny and collapse. Each country needs to control its own banking system and be able to issue the money it needs. See the answer I gave above for more details
"the only way this mess will be resolved is writing off all the debt and then starting again (ideally with a global public banking system and no more banksters)"
A global public banking system? SDR's anyone? It is amazing how the globalists try to slip in their new system of unelected elites overriding the sovereignty of states/nations to issue their own currencies. It is not even right for nations to issue currencies, which at this point in history is worthless fiat thruout the world. Currencies should be "money" chosen by the people in the free market. It might be gold with the head of a Roman Emperor stamped on it or maybe even the head of Obama. As long as it is real money and chosen by the market as the ideal currency to operate in their market. And don't get me going with this "global" bullshit. I am an Ohioan first and an American second. I am 100% for the Article V Convention of States movement at which the states have the opportunity to step back and eliminate Washington, D.C. thru a single amendment to the Constitution to undo what has become the disaster that many of the founders believed that a Federal government had the potential to become. First we get rid of D.C. and then we work towards reducing the size/scope of state governments.
I agree with you, global was the wrong word as it implies centralised and that is not what I meant. Every public banking system needs to be owned by the public, not a centralised group The issues behind public banking are complex. Some states in America operated under public banking and made it work so well no income tax was needed ie Pennsylvania and Europe operated for 500 years under the tally system without depressions or hyperinflation (It took the bankster funded Cromwell war to end this system, it did not fail by itself) in some cases public banking did not work. Unfortunately it appears that while public banking may offer an ultimate solution human weakness meaans it will not always work. History shows a pendling between public banking and a gold standard and so having gold as a backup is neccessary
Greek politicians are sure good at talking.
Like being Greek makes a difference.
The swiss central bank is in a lot of trouble. If the Euro goes down >20% in a year but the Swiss rate is -0.2% this is the equivalent the Russia's raising of the rate a couple tenths when the Ruble was rising more than 1% per day.
The Ruble is the example. If the curency is losing 3% per day and the rate is 2% per year you are way off base. Notice the only thing that stopped the Ruble rise was a 17% rate AND RCB selling of Euro, Dollar and everything else?
Wait till SCB surprises again with another rate cut and this will be bigger as they are now way behind the deflation curve.
I've written this before, rates are negative and bond holders reluctant to sell because the ECB I overnight rate is -.20bp. ie they are making the rate negative and causing the problem .. If they life the overnight rate to 0-0.15% like BOJ/ FED then people will sell and leane the money with the ECB, so clearly the Grrmans don't want this to work.
QE is debt write off that's all it is. The central bank buys the bonds replaces it with cash ( increased money supply) and then pay interest back to the Govr so it becomes a perpetual 0% rate loan.
They can never admit this because one of all the central bank rules is no Govt financing.
They should face reality write off what's needed ( one large one off QE bond redemption)..
And move on with balanced budgets/ normal rates/ prices.
There will be an inflationary effect, but the longer the Govts pretent they can keep increasing the debts the worse the effect will be ie end it now .
Cut tax / reduce Govt spending / regulation free the market.
It the price of rice is high it should be because of a shortage, if the price is low it should be because of increased supply or improved technology.
That better servers society to have the price based on reality to prevent shocks or at least the shock is based on real events.
Funding cost should he based on demand. If a bank goes under, deposited should be insured ( QE could he used here) but stock holders/ bond holders ( risk investors) take the loss ie that's the market you get the reward and loss depending on companies performance..
http://yanisvaroufakis.eu/2015/03/15/presenting-an-agenda-for-europe-at-...
I wish the government would get off their lazy godamm ass and get this QE over with once and for all. At least send me a government check for $10 grand or heicopter drop as much as you can so I can go out the next day and buy as much gold bullion that I can carry.Why let the Chinese and East Indians have it all?
http://kingworldnews.com/world-will-now-witness-a-series-of-devastating-...
Let me tell you,
the day they start sending 10 grand checks out you will not be able to buy enough gold to fill a tooth cavity, even if you sell your fucking mac mansion as well
The Greek FinMin has an interesting take on how the global economy got into the shape it is in. He calls it the "Global Minotaur", a metaphorical look at the U.S. role in collapsing the world's economies.
http://www.globaldeflationnews.com/the-global-minotaur-a-global-finance-...
Is this the same Varoufakis who just sold out the Greek people to the Troika?
Just sayin'.
No he didn't, he did not sell out anyone, idiot.
He is taking the piss, and taking the fucking retads money every day, because they, the fucking EU clowns, are the fucking desperate wankers who can't afford anything to go wrong.
Greece knows it will exit and default and will screw these fuckers over as long as they can, which should be obvious to anyone with half a brain now as the more the take the piss the more cash they get from the stupid EU clits
QE will not work again and again ... until it does.
These ECB guys are not only insane, this tactic was taken when it was to cushion the blow of a Grexit.
Feed the banks!
Results of European QE: German stocks more and more up like a rocket,
and Greece stocks goes more and more DOWN, that's fun in Greece?