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SocGen: "Markets Have Lost Faith In Monetary Policies"
Aside from a few skeptical strategists, SocGen's economists such as Michala Marcussen, have been ever so happy to drink the Kool-Aid of a US, and global, recovery that never comes and of a rate hike which until a few weeks ago was "imminent"... and suddenly isn't even though nothing in the US economy has supposedly deteriorated. Which is why we were very surprised to read a note from none other than Marcussen, in which the formerly hopiumy economist , confirms what we have always known: that sooner or later, everyone will admit the truth.
From SocGen
Less confidence in central bank puts
As noted above, the most notable feature of recent market price action is that there has been no visible comfort taken on risky assets from the idea that central banks may step in with further liquidity injections to alleviate the situation. To our minds, this reflects two main points. First, the fact that the tremendous amounts of liquidity injected to date have produced less than spectacular economic results. Clearly, markets have lost faith in the ability of unorthodox monetary policies to kick start the economy over time. This also fits the findings of academic literature suggestion diminishing returns from subsequent rounds of QE. Second, central banks have clearly become more concerned about the potential risks to financial stability from indefinitely inflating asset prices, suggesting that they may be slower to step in.
Should the current situation - contrary to our expectations - spill over to a full blown crisis, we have little doubt that central banks would act. The lesson from the last crisis was that as the crisis deepened, central banks became more unorthodox in their approach. While part of the debt service costs of the public sector have been monetised (as central banks hand back profits from the carry of government bonds to the government coffers), actual debt has not been monetised. Moreover, political constraints have kept fiscal policy considerations in check in the bulk of the major economies. This raises an interesting question on whether fiscal policy expansion, backed by central banks, becomes the tool to fight the next crisis.
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So... central bank intervention does little (or nothing, as the St. Louis Fed admitted as well), and yet SocGen has "little doubt that central banks would act."
Come to think of it, so do we, because while the world knows Einstein's definition of insanity, here is what his definition of idiot would be: a central banker.
As such, perhaps it is worth reminding readers that from the very beginning of this website, we predicted that the unleashing of QE, first in the US, and then everywhere else - the biggest policy mistake ever conducted by central bankers everywhere - has just one very logical ending: helicopter paradrops.
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Load the Helos Motherfuckers.....Shorts had best lube up the anal orifice....this is gonna hurt.
If the Fed brings the QE back, "markets" will regain their faith in monetary policy.
But ... can they bail out again?
I surely hope not. Insolvency is not a liquidity issue.
The short answer is yes. And no.
They aren't going to be directly recapitalizing the banks again anytime soon (that required Congressional approval). But they CAN buy the "bad assets" out of banks and monetize it. Remember that half of the $80B/mo. of QE3 was purchasing MBS (Mortgage Backed Securities).
If they can buy MBS they could buy just about anything that's on a bank's or insurance company's balance sheet. Shit, they could buy their Accounts Receivable if they wanted to.
In theory, a central bank could buy assets at 100 cents on the dollar KNOWING they were worthless from the get-go. You can do amazing things when you own a printing press and your balance sheet can't be audited.
Won't matter, one thing they cannot buy is time.
In time China wil do anything to prevent a civil war, and they still have >25 million more males of draft age than females. Use them or lose them.
We'll be at war soon, somewhere, with a year or so.
Go long random explosions of fuel depots.
The “market” is not THAT stupid.. it lost faith a long time ago.
It is the interventionist policy makers, manipulators and speculators that have kept it going up for the last few years.
It is the manipulators and speculators that have lost faith in the interventionist policy makers.
They can and will do whatever they decide.
Bandgap - Yes. Geopolitics is the wild card. It is time to get vague in what is discussed while speculating.
Lets just say what has been repeated here for years about having the 3B's (beans, bullets and bullion) is now becoming even more important than ever. That and a way to purify water.
I don't like some of the "we told you so now you deserve it" postings I am seeing. Some of us were fortunate we had the time for certain kinds of research and analysis to hedge, a 'rather be safe than sorry' conclusion and actions.
Now it is time to step up and lead, don't be dinks. Show some class. There will be opportunities to add or restore brakes for how we do business and conduct our affairs. Brakes on the failings of human nature for mutual posterity are the best we can collectively do.
We're going to have a lot to rebuild. Take care of one another. God bless people of all nations. Don't tell me they all deserve to suffer.
The Fed IS the market.
Lost faith....noooo, ya think?
Sado-masochism has ruled the market for awhile, but it'll be a reaming for everybody this time around.....
There are no shorts hence no bottom. The BTFD'ers (cb) own it all.
How does a godless commie lose faith?
So what did the Chinaman say as he lept from the janitor closet???...Supplies!!
Dropping money from a helicopter actually would have worked a lot better than QE.
Dropping helicopters would work even better yet.
I n the world of deflation, the helicopter is king
Tomorrow looks brutal right now. But, how long can the Plunge Team, The Fed and Obama hold back from entering markets directly to support stock prices. The rich are being hurt here! Somebody fucking HELP THEM!
<<<"This is the big one! I'm comin' Elizabeth!"
<<<Magical PPT Unicorn Fairy Dust Recovery
The rich have gone short and will double their take driving this thing into the ground.
If the markets are crashing, isn't that because of withdrawals? Cash outs? First one out wins? The Ponzi scheme.
SocGen - "Should the current situation spill over to a full blown crisis, expect world war this time."
Indeed. Marc Faber has been right. He said they would "Print and Print and Print. It would fail. Then they will take us to war."
"With who Marc?"
"It doesn't matter, the USA will always find someone to go to war with."
Faber is right. Russia is being set up right now to trigger a major European war. Poland's leaders today are calling for NATO to move it's forces into Poland to confront Russia.
Has the world discovered that "Bernanke Bucks" are fucking toilet paper yet?
The Yellen bitch had better get printing!
Cliton for president!
Bush for president!
Democracy in action. Our next president will know how to revive the economy and get America working again.
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The FED does not understand or is paid not to understand that it is not assisting world financial system it IS THE FINANCIAL SYSTEM since it killed and burred all the markets, incapacitating them before 2008 and killing them after.
They are fixed on so-called liquidity while what they do is destroying liquidity for those who want to invest in the real economies.
With all the moral hazard and implicit TBTF status who in their right mind would put their money anywhere else but into blowing bubbles as a method of killing non-TBTF competition and as we result concentrating the capital in few hands of cronies. It has already happened.
I see that very few acknowledge the true reason for oil price collapse. The reason, which was repeatedly stated by Saudis, Russians and Chinese. All of them say this is the demand collapse stupid. And demand collapses because of rampant inequality in societies throughout the world since people are loosing income, paying off the ever-increasing debt and cut the investments and expenses to the bone or desperately engage in gambling on stocks.
That's why Saudis are trying to suppress fracking not to completely lose influence on US market after they lost Chinese and Indian market to Russians and Iran as a part of trade dedollarization efforts. As far as fracking itself is concerned, the industry is extremely over-leveraged, massively loosing money as we speak regardless of any technological improvements.
We see this desperation with unsound mining practices technically maximizing production over existing rigs, shortening their longevity to pay bondholders and survive another day. As soon as interest rates normalize (if ever) or banks will not be able to sell their junk bonds, they all will go bankrupt if Saudis keep the price low and they will for their own survival. We are just waiting for all the $90 hedges to expire and that’s will be it or another massive FED bailout, this time it would be junk bond holders.
As a result of geopolitical tension between US and Russia Saudis are step by step moving towards accommodation with the eastern powers to balance Iran support by Russia and China.
Just recently the number two sheik, defense minister of Saudi Arabia is in S. Petersburg, Russia talking about energy and military cooperation and perhaps purchasing weapons. It is clear political shift indicating much more independent new monarch who rebuked Obama just few weeks ago and without clearance from Washington attacked Iranian interests in Yemen.
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Saudis even substantially reduced purchasing of US treasuries, a historical development challenging of petrodollar. The even star selling bonds to cover budget deficit due to their currency peg which will break soon as in China mostly due to war spending and invasion of Yemen, since one cannot wage a war without freely printing money.
One way or another with big oil companies abandonment of the projects, the future of the shale industry is bleak and probably will be with marginal importance in the US. Already fracking has been almost abandoned in Europe since nobody want to challenge Saudis.
But what now? $’s loosing to euro, two choices unleash more ECB QE or the small interest rate hike by FED to preserve German exports. Will see what fraulein (being too kind) or alte Frau Yellen will do. Worry about Jewish lobby??? Look at 800 pounds German Gorilla aka Angela M. in the room eating your lunch. For Germans to export is to dominate the world.
Here is what the “injection of liquidity really is all about in simple terms:
https://contrarianopinion.wordpress.com/2015/01/28/liquidity-of-blood-sweat-and-tears/
and on the real economy:
https://contrarianopinion.wordpress.com/economy-update/
Controversial but interesting take on the so-called shale revolution I found at:
https://sostratusworks.wordpress.com/2015/01/15/the-shale-game/
"They are fixed on so-called liquidity while what they do is destroying liquidity for those who want to invest in the real economies."
Bingo!
Wall street makes money with trading. Liquidity = lots of trading = $ for traders.
Darn straight!
Normal thinking people lost confidence in the fed the moment they started printing to support the markets years ago. Sure it's been fun making hey while it lasted, but caveat emptor, because it's all been bullshit.
it's about time... I lost faith in them a long time ago... what are they - stooopid?
Ok ok...we have known this for 4 years. When does Bernanke stands trial ? When does Yellen stand trial? When does Stanley Fischer flee back to Isreal?
Helicopter drops of money would have been far more effective than QE, if the point had been undoing the damage done by Wall Street as opposed to saving Wall Street from the consequences of their own mistakes.
Fiscal policy expansion doesn't mean a national dividend (not for working class whites, anyway) or even lower taxes. It means an orgy of military expenditure devoted to preparing for total war with Russia. In the west economic growth has effectively ceased even with zero interest rates and free oil from Saudi Arabia---and the free Saudi oil won't last forever. They will never pay Russia a fair price for her oil. They'll start a nuclear war before they'll treat Vladimir Vladimirovich Putin as anything but a vassal grown too big for his britches.
Reminds me of the movie Dark City "shut it down.........SHUT IT DOWN FOR EVER!"
When shit gets real yous gots to lie!
And forget short selling that is now considered treason!
They are not printing. Think of it like this, banks have a savings account and a checking account at the FED The FED then takes some of the TBILLS or MBS out of the savings account of the banks and gives them money as a swap.
The bank now has money instead of a TBILL. The total amount in its account is UNCHANGED. It is a liquidity swap, money which is liquid for something that is less liquid. The bond or TBill then transits to the FED and expands its balance sheet. If you take money from your savings account and move it to checking, did you account balance really change?
The composition of the money supply, mostly the composition of the reserve loops has changed. There is less interest bearing TBills in the reserve loops and more money. Of course the FED now pays interest for money as compensation for Banker's losses. Think about it, the banks are paid interest on their "money" in their reserve loops, otherwise there would be a rate collapse to zero on the overnight market.
QE money is aimed at the reserve loops of banks. This is about 3 percent of the money supply. It is also called M0 or base money.
This base money only trades in part of the financial sector, a special place called the overnight market. It is a market for bankers, not for the general economy.
The 97 percent of the rest of the money supply is credit created by banks when YOU get hypothecated. Banks do not loan somebody elses money, they create the money supply by crediting accounts after a loan is made.
If the 97 percent of the money supply that is created goes after consumption, then there will be inflation of consumption goods. If the 97 percent goes after finance, say in the stock market, then it is negative real GDP activity. Usually financial paper is bets, and to pay the debts they harvest the real producing part of the economy... a net drain.
If the 97 percent is just property changing hands, there is no net gain to real GDP, it is just heat and movement. No new property was formed.
Government could just go to banks and take out a loan, and then spend it. IF they spent on real GDP items (not consumption), then it would put new money into real producing part of the economy and hence it is not inflationary.
The FED could QE into new 100 year municipal bonds, say at .25 and that would be real GDP investment as it is spent into the commons.
The volume of credit money and where it channels is much more important than interest rates. Who gives a damn about interest rates? Classical economists continue to fixate on interest rates and ignore banking. There have been plenty of times in the past with high growth and high interest rates. What matters is money volume and where it channels. Interest rates are always lagging indicators, credit driven economy declines, and post facto, FED lowers interest rates. If economy increases then FED increases interest rates to slow it down.
Japan after WW2 used credit guidance windows to direct its credit, and its post war economy was super efficient. It's credit went after GDP type of activity. I've asked ZH readers many times to watch the movie "Princes of Yen." What have you learned?
All the FED has done is try to manipulate interest rates by buying bonds (bond price high, interest rate low), this is then supposed to stimulate YOU to go out and take on new debt.
When you take out a new loan, THAT IS WHEN, the money supply increases and creates new demand. Later of course, that money is recalled according to its accounting periodicity.
The central bankers have been explained all of this by some rational economists. Independent central bankers continue to help out their buddies and their owners, which are the DAMN private banks. Private central banks are NOT interested in actually helping out the economy by VOLUME AND proper CHANNELING new credit.
Stop with the printing nonsense, people that talk like that don't understand how the money system works. It is ok enough to be ignorant, but the real way banking credit systems work is out there. The bank of England for christ sakes has even written a paper explaining how credit creation works.
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/...
Nobody seems to understand that private debts were built up during bubble years, as new credit chased after housing. Then QE buying MBS and TBILLS made interest rates low, which then propped up already sector inflated housing.
This then meant that people had to vector their wallet money to pay HIGH DEBTS. The actual real money supply did not increase (except with new private borrowing), and the mortgage debts are recalling it to destruction/deflation. By paying high debts to mortgage service is money that you don't use to trade with other producers, it is a loss as it disappears into the ledger.
Financial asset prices propped up by QE, then have no real support out of the real economy - as the real economy has no credit aimed at GDP type activity.
Either the central bankers are stupid, or they are malicious. That politicians are stupid is a given.
IT is pretty clear that the ECB is intent on creating a United States of Europe by busting out sovereign nations with austerity. It is known that BOJ created a credit bubble against housing/land to then allow finance to control that society, this is why Japan has been in a balance sheet recession since the late 80's.
Let no crises go to waste - Rahm Emanuel
So.... what you're saying is... cue the war machine?
Excellent analysis - thank you.
Key statement. As long as we have a monetary systm based on central banks managing our money supply our society faces extreme risk - new money is channeled into financial speculation and property causing bubblesd and avoiding the real need - to finance gdp producing markets. We need to rid ourselves of the debt-based monetary system, which is profitable only for the bankers, and turn to government issued non-interest bearing investments into the private gdp producing sector.
In the UK this organisation is leading the charge for change:
http://positivemoney.org/
Get educated about the monetary system! Under the current system only the private bankers benefit - all created money represents debt, and the bankers get interest on money they have created out of thin air.
Profitable to the POLITICIANS and the BENEFITS MONGERS, not just the BANKERS. That's far larger group. The bankers are doing what the people PAYING THE BILLS are telling them to do folks.
The GOVERNMENT is the payer, not the bankers.
Only in a lie-based political ideology - liberalism - can the people GETTING the money be accused of MAKING the policy.
POLITICIANS are printing the money - they are the PAYERS. They TELL the bankers what to do, and distribute the created debt to their CONSTITUENTS to keep the fiat money system going.
Bankers ARE NOT the start of the filth. Politicians and fawning VOTERS, purchased by POLITICAL handouts, are the root of the evil.
"By which means when, in their senseless mania for reputation, they have made the populace ready and greedy to receive bribes, the virtue of democracy is destroyed, and it is transformed into a government of violence and the strong hand." - Polybius
http://www.amazon.com/Atlas-Shouts-Modern-Patriot-Action/dp/1458217566
Money doesn't exist, only debt. Look at any physical piece of "money". It is a "note" AKA "debt".
While you can "spend" that debt at a store and get real, physical goods, it is debt nonetheless.
Another way to look at this is the following:
When they create fiat "currency" (usually in digital form) that you can spend, an equal quantity of debt is created. And so, in their theory, no net currency/money is created.
But that's a blatant lie. Why? Because at this point in history, with total debts astronomically higher than can possibly be repaid in any circumstances whatsoever, the debt part will be defaulted upon. Either by outright default (unlikely), or by massive inflation or hyperinflation. That will leave the "spending currency" in existence while erasing the debt, which IS then outright fiat currency printing.
Note this also happens with the high/hyper-inflation version too, because the value of what is repaid is effectively ZERO (negligible), thereby effectively the same as outright default in reality, but with the political advantage of not being called a default. But it is nonetheless.
So while this theory that "creating equal amounts of curreny and debt" is not "printing" has a basis in fact, at this point in history is it simply FALSE. And the world may finally, just now, be starting to suspect this.
You will enjoy my book:
http://www.amazon.com/Atlas-Shouts-Modern-Patriot-Action/dp/1458217566
Mefobills - I agree with most of what you say except:
1) You don't need a central bank to create funds for targeted stimulus.
2) Bankers and politicians served there own interests. That is not what we pay politicians to do.
This is the real reason I hedge. Because push comes to shove might makes right and I don't have might outside of defending myself from robberies best I can using information tools.
Translation: hyperinflation is one stock market crash away.
molon labe
what is the cause of diminishing returns ?
Lack of payable demand
how to avert it ?
provide consumer credit to prop up the demand
when there is nobody left able to borrow more or willing to borrow more the problem returns
how to avert the problem once again ?
Karl Max has the answer - turn capitalism into communism - provide free money to consumer
"SocGen: "Markets Have Lost Faith In Monetary Policies"
Schemes and grift are not policies, but crimes.
Zion is a scheme, not an ethnicity.
Guillotines are my policy.
That's a good posting Scatha. In fact if Iran and Russia and Saudi Arabia find common cause oil prices could be stabilised in the future. If Saudi decides to bring Qatar to heel it would remove the real friction between Saudi Arabia and Iran and quieten down Libya so Egypt can deal with it backed by say, Italy.
The current disaster in Macedonia, Greece, Hungary spreading to Germany, Austria, France, Italy, UK of mass-movement of displaced peoples from Syria and North and West and East Africa will blow apart the NATO countries...........there has been no media coverage of the huge influx of Ukrainians into Russia seeking refuge or of Ukrainians seeking work in Poland and how they are exploited........
Europe is becoming a powder keg and the US seems to be hellbent on destroying the world
None of the money printed went anywhere, it just went to bank reserves.... the banks did not spend or invest any of the counterfeit fed fiat into the economy....how is newly printed money supposed to do anything when it just sits in a holding account at a bunch of fraudulent banks that should of went out of business 8 years ago?
Money velocity is the only thing that can get things moving.
Printing money and handing it to banks does nothing for money velocity.
https://research.stlouisfed.org/fred2/series/M1V
This is nonsense. "Velocity" is just a fudge factor in the tautological quantity equation of money. All "falling velocity" is telling you is that the Fed has indeed printed a ton of money - so much, that growth in the money supply (which has amounted to nearly 120% since 2008) has been much faster than GDP growth. It is erroneous to believe that "QE" only creates bank reserves. It creates BOTH deposit money and bank reserves. This is so because the primary dealers are all legally non-banks with their own bank accounts. The moment they receive a check from the Fed, both their deposit money and bank reserves at the Fed rise.
Lastly, additional money cannot lead to economic growth. Neither the Fed nor the commercial banks can create a single iota of real capital. Newly printed money merely distorts prices and misdirects already existing scarce resources. It weakens the economy, it doesn't strengthen it.