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Peter Schiff Warns: Meet QT - QE's Evil Twin
Submitted by Peter Schiff via Euro Pacific Capital,
There is a growing sense across the financial spectrum that the world is about to turn some type of economic page. Unfortunately no one in the mainstream is too sure what the last chapter was about, and fewer still have any clue as to what the next chapter will bring. There is some agreement however, that the age of ever easing monetary policy in the U.S. will be ending at the same time that the Chinese economy (that had powered the commodity and emerging market booms) will be finally running out of gas. While I believe this theory gets both scenarios wrong (the Fed will not be tightening and China will not be falling off the economic map), there is a growing concern that the new chapter will introduce a new character into the economic drama. As introduced by researchers at Deutsche Bank, meet "Quantitative Tightening," the pesky, problematic, and much less disciplined kid brother of "Quantitative Easing." Now that QE is ready to move out...QT is prepared to take over.
For much of the past generation foreign central banks, led by China, have accumulated vast quantities of foreign reserves. In August of last year the amount topped out at more than $12 trillion, an increase of five times over levels seen just 10 years earlier. During that time central banks added on average $824 billion in reserves per year. The vast majority of these reserves have been accumulated by China, Japan, Saudi Arabia, and the emerging market economies in Asia (Shrinking Currency Reserves Threaten Emerging Asia, BloombergBusiness, 4/6/15). It is widely accepted, although hard to quantify, that approximately two-thirds of these reserves are held in U.S. dollar denominated instruments (COFER, Washington DC: Intl. Monetary Fund, 1/3/13), the most common being U.S. Treasury debt.
Initially this "Great Accumulation" (as it became known) was undertaken as a means to protect emerging economies from the types of shocks that they experienced during the 1997-98 Asian Currency Crisis, in which emerging market central banks lacked the ammunition to support their free falling currencies through market intervention. It was hoped that large stockpiles of reserves would allow these banks to buy sufficient amounts of their own currencies on the open market, thereby stemming any steep falls. The accumulation was also used as a primary means for EM central banks to manage their exchange rates and prevent unwanted appreciation against the dollar while the Greenback was being depreciated through the Federal Reserve's QE and zero interest rate policies.
The steady accumulation of Treasury debt provided tremendous benefits to the U.S. Treasury, which had needed to issue trillions of dollars in debt as a result of exploding government deficits that occurred in the years following the Financial Crisis of 2008. Without this buying, which kept active bids under U.S. Treasuries, long-term interest rates in the U.S. could have been much higher, which would have made the road to recovery much steeper. In addition, absent the accumulation, the declines in the dollar in 2009 and 2010 could have been much more severe, which would have put significant upward pressure on U.S. consumer prices.
But in 2015 the tide started to slowly ebb. By March of 2015 global reserves had declined by about $400 billion in just about 8 months, according to data compiled by Bloomberg. Analysts at Citi estimate that global FX reserves have been depleted at an average pace of $59 billion a month in the past year or so, and closer to $100 billion per month over the last few months (Brace for QT...as China leads FX reserves purge, Reuters, 8/28/15). Some think that these declines stem largely by actions of emerging economies whose currencies have been falling rapidly against the U.S. dollar that had been lifted by the belief that a tightening cycle by the Fed was a near term inevitability.
It was speculated that China led the reversal, dumping more than $140 billion in Treasuries in just three months (through front transactions made through a Belgian intermediary - solving the so-called "Belgian Mystery") (China Dumps Record $143 Billion in US Treasurys in Three Months via Belgium, Zero Hedge, 7/17/15). The steep decline in the Chinese stock market has also sparked a flight of assets out of the Chinese economy. China has used FX sales as a means to stabilize its currency in the wake of this capital flight.
The steep fall in the price of oil in late 2014 and 2015 also has led to diminished appetite for Treasuries by oil producing nations like Saudi Arabia, which no longer needed to recycle excess profits into dollars to prevent their currencies from rising on the back of strong oil. The same holds true for nations like Russia, Brazil, Norway and Australia, whose currencies had previously benefited from the rising prices of commodities.
Analysts at Deutsche Bank see this liquidation trend holding for quite some time. However, new categories of buyers to replace these central bank sellers are unlikely to emerge. This changing dynamic between buyers and sellers will tend to lower bond prices, and increase bond yields (which move in the opposite direction as price). Citi estimates that every $500 billion in Emerging Markets FX drawdowns will result in 108 basis points of upward pressure placed on the yields of 10-year U.S. Treasurys (It's Official: China Confirms It Has Begun Liquidating Treasuries, Warns Washington, Zero Hedge, 8/27/15). This means that if just China were to dump its $1.1 trillion in Treasury holdings, U.S. interest rates would be about 2% higher. Such an increase in rates would present the U.S. economy and U.S. Treasury with the most daunting headwinds that they have seen in years.
The Federal Reserve sets overnight interest rates through its much-watched Fed Funds rate (that has been kept at zero since 2008). But to control rates on the "long end of the curve' requires the Fed to purchase long-dated debt on the open market, a process known as Quantitative Easing. The buying helps push up bond prices and push down yields. It follows then that a process of large scale selling, by foreign central banks, or other large holders of bonds, should be known as Quantitative Tightening.
Potentially making matters much worse, Janet Yellen has indicated the Fed's desire to allow its current hoard of Treasurys to mature without rolling them over. The intention is to shrink the Fed's $4.5 trillion dollar balance sheet back to its pre-crisis level of about $1 trillion. That means, in addition to finding buyers for all those Treasurys being dumped on the market by foreign central banks, the Treasury may also have to find buyers for $3.5 trillion in Treasurys that the Fed intends on not rolling over. The Fed has stated that it hopes to effectuate the drawdown by the end of the decade, which translates into about $700 billion in bonds per year. That's just under $60 billion per month (or slightly smaller than the $85 billion per month that the Fed had been buying through QE). Given the enormity of central bank selling, and the incredibly low yields offered on U.S. Treasurys, I cannot imagine any private investor willing to step in front of that freight train.
So even as the Fed apparently is preparing to raise rates on the short end of the curve, forces beyond its control will be pushing rates up on the long end of the curve. This will seriously undermine the health of the U.S. economy even while many signs already point to near recession level weakness. Just this week, data was released that showed U.S. factory orders decreasing 14.7% year-over-year, which is the ninth month in a row that orders have declined year-over-year. Historically, this type of result has only occurred either during a recession, or in the lead up to a recession.
The August jobs report issued today, which was supposed to be the most important such report in years, as it would be the final indication as to whether the Fed would finally move in September, provided no relief for the Fed's quandaries. While the headline rate fell to a near generational low of 5.1%, the actual hiring figures came in at just 173,000 jobs, which was well below even the low end of the consensus forecast. Private sector hiring led the weakness, manufacturing jobs declined, and the labor participation rate remained at the lowest level since 1976. So even while the Fed is indicating that it is still on track for a rate hike, all the conditions that Janet Yellen wanted to see confirmed before an increase are not materializing. This is a recipe for more uncertainty, even while certainty increases overseas that U.S. Treasurys are troubled long term investments.
The arrival of Quantitative Tightening will provide years' worth of monetary headwinds. Of course the only tool that the Fed will be able to use to combat international QT will be a fresh dose of domestic QE. That means the Fed will not only have to shelve its plan to allow its balance sheet to run down (a plan I never thought remotely feasible from the moment it was announced), but to launch QE4, and watch its balance sheet swell towards $10 trillion. Of course, these monetary crosscurrents should finally be enough to capsize the U.S. dollar.
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These monetary crosscurrents should finally be enough to capsize the U.S. dollar.
What will capsize the US dollar is the massive US debt of $210 trillion.
US debt was $60 trillion in 2003 and $210 trillion in 2014 as Kotlikoff points out - increasing at $306.22 per taxpayer per day from 2003 to 2014. Or $111,770 per taxpayer per year.
US prosperity has been purchased with massive debt which can never be repaid.
Forward
Forward...into the shitter.
Deep and liquid, mostly.
+1 tyler for the quiktrip logo. Based in tulsa oklahoma. QT has great slurpees (freezonis?). Gonna be cold and refreshing up yellens ass when the fed is forced to buy higher yielding US debt
Why would any sane central bank purchase IOUs from a government that can issue an inifinte amount more?
Schiff's a smart guy. But his decoupling theory is complete bullshit. He keeps waiting for the collapse of the Yankee dolla, and it just ain't gonna happen. He reminds me of Linus in the Pumpkin Patch.
Schiff says the Fed will have to do this and will have to do that. I'm glad he's in charge of the Fed. Somebody needs to tell them what they have to do. I just wish he didn't sound so mixed up when he writes articles.
All our gold is in Israel, unless they audit it and show it to me, that's where it is.
Schiff got it wrong in his decoupling theory. All fiat currency will collapse along with the dollar and things will return to the same old in a new bottle. Schiff didn't expect China would continue its suport for the dollar since the dollar ponzi was exposed in 2008. The Chinese wanted a gradual transition instead of a sudden collapse. They thought we would work with them by allowing the RMB in the IMF reserve - we lied.
IMF Quota and Governance Reform was signed in 2010 to be implemented in April 2014. Even armed with a pen and a phone, the smartest president/dictator wannabe is helpless because the congress would not pass the IMF legislation.
China will not suck up/support the dollar in the next QE. We will not be able to export the inflation any more. I think the fed still cannot make a dicision on whether to solve the next crisis by myRA or QE. I think it may be QE, myRA and then QE again which will be the straw that breaks the camel's back.
I see the serial down voter has been hard at it again.
Yes, I wonder who it is... Perhaps the Tylers are archiving the info, maybe sort of like Ashley Madison, ha ha...
But if the fed raised interest rate then the foreign redemptions would be paid less no. Isnt that the best way to steal from china if they dump tresuries.
No, because the US treasuries are USD dominated. They'll be able to print more of their currency and spend more on US treat and will cause inflation to us because of more dollar coming home.
Huh I thought china was selling dollars to raise yuan. I thought they are now competing with dollar for reserve status. I thought they are in muscle flex mode. I thought we are not friends anymore.
60 Trillion, 210 Trillion....as long as its fiat debt, it can always be paid, and it can always be paid back.
default would actually be our friend....but since we can print journal entries without restraint...we don't really have to worry about it.
....until one day when all the people who depend on a .gov check have to pay $30 for a tomato...then, it's going to get very ugly.
actually in a debt based fiat system (with govt deficit spending), one always has to issue new debt to pay the interest (even at 0.25%) on the old. ponzi schemes do not last for ever.
Relax guys, Fed will buy up all dat paper. Then monetize, monetize, monetize. All is well, just ask uncle Ben and aunt Janet.
QT? Is that like Janet doing Kegel exercises?
No That's called "CT"
I see the bag holder of all that paper and it's us. It's gonna be forced government purchases of UST.
5
you are still thinking this situation can be fixed or some how made right with taxes and austerity and other dark magic...it can't...it is just going to break...or in the venacular of the pesantry...capsize...
That doesn't mean that Washington DC won't mandate that an ever increasing percentage of retirement accounts must be in USTs. To "protect" the people, of course. There's an old quote attributed to Willy Sutton when he was supposedly asked why he robbed banks: "Because that's where the money is." It's not clear that he actually said that, but back in those days it was true. Fast forward to today and where is all of the money? When shit starts to go south, don't be surprised if the government starts eyeing retirement accounts, because that's where the money is these days.
Scene from Drugstore Cowboy
AA meeting...
Dillon (bob): That's where the drugs are so we robbed pharmacies
Other guy at meeting: You want money rob a bank, you want drugs rob a pharmacy (laughter)
Something like that anyways...
Bingo. Can you say "MYra"?
Anybody that hasn't already cashed out their 401k is about to run out of time.
I have the grand sum of $400 left in a retirement account in the UK, the cost of vesting it
is more than the cash sum.
How about mandatory euthenasia for all that make it to 65?
set euthenasia age to 55 and you take out all the retirement age government employees as well as any potential social security retirees
No LVP, that's not what I think, guess again! : ))
I think things are going to collapse bigtime and we'll be like Argentina if we're lucky, Venezuela if we're unlucky. I was just connecting proximal dots from the above article topic.
Let me ask you, do you really think they're going to give up and not do all of the things you say, plus more, even as everybody already knows, including them, that none of it is going to fix anything? They're just going to say, "Well, nothing we're doing is working and people are going hungry so we better go back to free markets and do the right thing" ? No way.
They're like drowning men, and will try to clutch onto anything to keep their own heads above water to buy time. Bail-ins and confiscation of pensions are already baked into the cake, and will make us the bagholders de jure. If we were on an airplane low on fuel they'd throw us out first.
We'll probably look back on the confiscations and bail-ins as the good old days, a speed bump on the downhill road to perdition. Coz when all the money is taken away, and everything freezes up, the economy will go from real bad, to really worser. If wars break out it could get much worse than Venezuela.
You are also implying a break between Wall Street and the Government, unless of course hedge fund managers get paid 2 and 20 to manage treasuries? All those gifted financial advisors out there wit hTreasury AUM??
Would make for interesting theatre and skyrocketing popcorn company stocks.....
Some pigs on Wall Street are more equal than others.
Some pigs are moar equal and special and they are guaranteed 100% return on their money. These pigs have organized and call themselves the Swine Istitution For Importance, aka SIFIs. This means that after the sheep get slaughtered and eaten, the less equal pigs will get slaughtered.
But not the SIFIs. SIFI pigs never get slaughtered, it's the law.
.
ummmm. DONT cross the streams
https://www.youtube.com/watch?v=jyaLZHiJJnE
My fellow American's, I will make a retirement plan mandato...err , available that is guaranteeeed to never lose its value. myRA
substitute 'price' for the word 'value' and I'm a believer...
Decades of a mix of incompetence and corruption in the US.
Offshore your manufacturing, wipe out your job market, print Trillions of dollars, give it to the .1% and shove it on the Debt bill for the 99.9%, do nothing to improve the real economy, waste Trillions on a Bloated Military and Government.
The US will reap what it has sowed.
For an Aussiekiwi, you are so well informed about the land of the free. And you put it so neatly and succinctly. You should be posting more often
"For an Aussiekiwi, you are so well informed about the land of the free."
Most people outside of America are well informed about America and it's politics. It's Americans who are mostly uninformed, ignorant sheeple.
politics are for little people
As soon as you realize that nothing the politicians say, has any appeal to you.
Yep "politics" or squabbling amongst the sub-whores is for the sheeple. Weltpolitik - not so much.
"My greatest flaw. I surround myself with idiots."
- Victor von Doom
I have to agree. The educational systems, especially schools, are much better outside of America in other first world countries. And the media is not owned by the National Security Apparatus.
Fluoridated water, now classified as a Neurotoxin by the Lancet, has been known to lop off a few IQ points and GMO foods that kill the gut bacteria that make precursors to Dopamine and Serotonin do not help IQ either.
44.1% of visitors to Zero Hedge are from the US per Alexa. So we have an international experience here.
"It's Americans who are mostly uninformed, ignorant sheeple."
You're right, except for me of course :)
And my fellow American sheeple are going to pay a terrible price for their ignorance.
Still stackin' bitchez :)
Good on ya. But realize the information about us comes with a price courtesy of our good old Uncle Sam. See, those satellites beaming American TV shows into all of your homes 24/7 don't just broadcast.
Don't get mad at me, I'm with Snowden.
Americans don't give a fuck about the truth or the greater good. They don't see themselves as part of the problem. Many of the brightest still cling to the idea that the cesspool of party politics is the solution. We are the most spolied, apathetic culture on the rock- maybe in all history. Your gut tells you this is going to end very badly- those of us who think this way- are hoping we wont have to endure the consequences.
Land of the flea?
a/k
we know, we know...
We have no more control over the federal government than you do though. They don't need our tax money because your government lends them the money to run their little shit show without causing severe inflation. Once their precious dollar gets 'capsized' we'll be fine...broke ass poor but back to being the Americans the world used to love and we will kick your ass in everything except Rugby (and maybe sheep sheering).
.... did you mean sheep shagging?
It seems to me that debt gets devalued i.e. the bond market suffers indigestion and interest rates on the long end go sharply higher, how's that going to be bad for the dollar?
The US economy is addicted to QE because the US consumer has become addicted to entitlements. Without the Government paying out entitlements, the US economy (and many foreign economies) would crash. This is why the worldwide Economic system is increasing made up of smoke, mirrors, winks and nods. But just making US citizens dependent is not enough. We don't bring in millions of refugees and illegals to grow the economy in real terms (each immigrant is really a net loss to us). Rather, we are bring them in as agents of monetary velocity. That is, the Government gives them $$ so they can spend it at Walmart and other stores, thus stimulating the economy. And the ever shrinking number of actual US taxpayers is on the hook.
The problem is that we are well past the tipping point. Not even the smartest economists have any idea how to fix this mess. And some, like Krugman, have doubled or tripled down on the insanity. So, they just keep spinning the Merry-go-round faster and faster, with everyone hoping it somewhow won't fall apart on their watch.
I think it's kind of cute that people are still quoting Peter Schiff.
Take a trip down memory lane if you dare. Schiff made these people look like fools, perhaps you would like to join the list.
https://www.youtube.com/watch?v=Z0YTY5TWtmU
Schiff is (and has been) the best explainer of SHTF scenarios. He is actually pretty awful at predicting when to buy gold, but in terms of sensing how SHTF, he is usually quite spot on. And his ability to explain it off the cuff in interviews is spectacular.
Fuck you and Fuck Peter Shifty.
He is pretty good.
The predicters of gold prices have been pretty awful but I think it's because the actions by the market riggers have been so audacious, they're way beyond anyone's imagination. You can't make predictions in such an environment. People who try to read technical charts have not done much better either because the markets are so distorted.
And If I had invested in his company, I'd be broke. The dollar will collapse as soon as we run out of zeros.
Tough to predict intervention. How long it will last is even tougher.
Eventually markets normalize. If they don't and the Fed keeps fiddling with everything, the problem grows into something they can no longer control.
China is a good example. A state controlled economy with vast ghost cities and bubbles everywhere.
Japan is a preview of US future. We have been given a chance to preview the fed's grand money printing and debt experiment.
Chinese warships 12 miles off the coast of the US should be a good enough warning for the US.
NO ONE has been good at all about predicting PMs. Pete gets a pass.
And Irwin Schiff is as much an American Hero as Snowden.
No problem for the US Treasury.
Congress and the dipshit in the WH will force US pension funds to "invest" in UST's
Bet on it.
"invest" indeed. it actually would be a program for UST debt retirement with a "promise" to payout a measly sum of SS welfare. in other words, theft.
Let's not assume China "dumped" anything. I assume they got a market price and there were plenty of other people with dollars willing to buy those instruments, even if they had to sell their own currency to get dollars.
QE in an attempt to create inflation ends up making US's greatest export (treasuries) more valuable. As treasury demand sucks dollars out of the system we get deflation instead. I'm wondering if tightening will cause inflation or if we are already in the same trap Japan fell into? (Will USD weaken abruptly or ar we looking at 20 years of strength.)
We have hit personal debt saturation.
China's bubble is bursting and it won't be pretty.
Add in that 10,000 baby boomers are retiring daily and you have a disaster going forward.
It is BOOMERS the world over and not just in the USA. I am one, sad to say it, and am producing NOTHING in income to offer my help..>my wife and I are now blood sucking our Social Security.
Jim Willie says they are printing trillions a month, not billions. Qe stuff, derivatives etc. What I wonder, is why they need our taxes if they can just print money? and kchris will tell me, "its about control"...and he is right.
Debt/tax slaves.
I dont understand people who talk about debt....Seems to me as long as you have a computer and can press ones and zeroes, there is no problem...Just keep putting the ones and zeros in? why not?
sarc
Seems to me, world war 3 is all that will come of this. We are already in WW3, we are at war with russia in syria, we are at war with china monetarily. China dumps some treasuries and devalues their currency and langley bombs that tiajuan (sp), thing. WW3 has already started.
We all know that no rate increase will happen. A new QE will be started as soon as Goldman Sucks's shares will sink as they have already started to do. Peter has been right all the way, of course everybody questions his timing, but the reality is: on the fundamentals, he's been right up to now.
At this stage, it doesn't matter what the Fed does. Control is an allusion.
Yea, if they are buying US debt via the BLICS, it seems that they can keep it up for quite a while.
http://www.treasury.gov/ticdata/Publish/mfh.txt
BRILLIANT, short, to the point and the Comment of my day. Except that ALLUSION should be replaced with the word, "illusion." And, illusory it all well is and shall be.
Peter, Peter...
Let's peal back the essential essence of this onion, grow some balls and get to the rest of the story...
"...the Treasury may also have to find buyers for $3.5 trillion in Treasurys that the Fed intends on not rolling over."
Okaaaaaaaaayyyy. Who is going to pickup this fucking 3.5 trillion ton debt turd? Belgium? The fucking Queen of Engleland? A fucking character named Tyler? Paul-fucking-Krugman on his Princeton and NYT salary? You?
Come on? Let's hear it Peter, who?
Fucking NO ONE.
You go on...
"...which translates into about $700 billion in bonds per year."
Ok. That is a linear absorption rate assumption. The world economies are not linear and their ability to purchase 3.5 Trillion of FED Debt does not exist.
This means no one can buy the FED's debt without a fantasy printing orgasm as we go into a world wide rescession/depression.
And it means that Janet-fucking-Yellen is full of shit.
BTW, fuck the dull minded phrase "Quantitative Tightening."
It has jumped the-fucking-shark already. Get your own spot on phrase, not invented by a bunch of Deutsche Bank cunts, respectfully speaking, of course.
May I suggest, "SOS" which subtly translates into we're fucked and we need Alien assistance right-fucking-now.
Ok, so you close with the view that more QE is certain under the circumstances that it's fucking impossible for the FED criminals to get out of jail free without sinking the U.S. economy, and capsize the U.S. dollar with higher interest rates.
Ok fine. That is, presuming Janet-fucking-Yellen is not full of shit.
However, we do know that she and her ilk are all full of shit.
That means money printing will continue to prop up the illusion that simple minded, arrogant, self-serving humans that need to protect their jobs and pensions are independent and qualified to control an economic monster that will not submit to their demands.
Ya right. I buy that crack laden line of crap. Fuck that.
When unlimited printing of U.S. dollars stops supporting the grand illusion (and supports a final solution for Keynsian plutocrats) then that will be the sinking of the dollar my friend.
What is there to replace it?
At some point, we will have to address our economic structural problems with a genuine and honest intellectual force without the resistance of the corrupt, money printing status quo.
I call it "Dominatrix Economics."
And fuck you if you don't like it.
Until then,
Love,
Alexa your Dream Dominatrix
Friggon aye, ya gave me a hard on..put that in pill form and I will buy your entire inventory.
That hurt so good.
"a bunch of Deutsche Bank cunts, respectfully speaking, of course".
HAHAHAHAHAHAHA that had to be the damned funniest thing I have read in a long time :) I agree, but you put it so well.
At some point, we will have to address our economic, structural problems with a genuine and honest intellectual force without the resistance of the corrupt, money printing status quo.
Do you mean, after the 2 x 4 has repeatedly struck the ignorant US citizenry, after the guillotines have been worn out from too many banker-necks, after the US has suffered unimaginable horrors of a second civil war, then when the 50 or so people who remain alive decide to what you suggest...you mean then, because that is what it will take to get rid of the corrupt, money printing status quo?
Affirmative Danny Boy.
"Without this buying, which kept active bids under U.S. Treasuries, long-term interest rates in the U.S. could have been much higher, which would have made the road to recovery much steeper"
-No, the Fed would have just purchased more
"Citi estimates that every $500 billion in Emerging Markets FX drawdowns will result in 108 basis points of upward pressure placed on the yields of 10-year U.S. Treasurys"
-No, the Fed will just purchase more
"Given the enormity of central bank selling, and the incredibly low yields offered on U.S. Treasurys, I cannot imagine any private investor willing to step in front of that freight train."
-See the last two comments about the Fed
While the premise of central banking being a destructive force is correct, the details are incorrect. Peter is a salesman that preys on fear. We should all be fearful of how this will play out, but people shouldn't just make shit up to market a story to ZH and Business Insider...
How's robo doing these days?
Financial Sense says this, September macro update: Majority of data still positive.You be the judge.
http://www.financialsense.com/contributors/urban-carmel/september-macro-...
Interesting read. And I suppose there is some truth to the "just chugging along" theory, but much of what is in there is positive, but not wildly so. The questions are a) is that sort of meager recovery enough to sustain the USS Entitlement State if it continues indefinitely and b) will it in fact turn negative as the QT process unfolds.
Bottom line as I read it is yes, the US is the cleanest dirty shirt, and, as one of the last DMs to adopt the Euro-socialist entitlement burdens leveraged by rampant illegal immigration, we are probably in the best position to make the necessary structural economic changes to right the ship before the sea of red ink sinks her.
But there's lots of rough seas to get through before we make it safely to shore. Best to be looking for that life jacket now rather than when (and if) she capsizes.
If the US shuts down the Federal Government because it doesn't exist as a form of government, now that corporations simply use it as a way to extract wealth from its citizens, that would give the nation many more years of operation without running into a financial problem.
Bravo Schiff
I'm Still not buying the QT theory.
Evidence of no "tightening" manifested by relatively successful Treasury auctions at low rates.
Fed Reserve feels comfortable jawboning 2% interest rate hikes.
(If fears of a tightening were manifest, the Fed would be moving to NIRP. Or announcement of new QE.)
Help me see what you see.
I had the same thought when I read the reports of fairly successful recent auctions but I suspect it might just be a function of the illiquidity built up in the market for treasury debt and a rotation out of lower rated debt (which is being hammered). So it will start out barely noticable (effecting only junk right now) but as time goes on the cumulative effects will become more and more evident across the credit quality spectrum. And you are going by what the Fed is saying - lets wait and see what they do. Schiff (among others) is saying they will be forced to restart QE no matter what they are saying now.
Agreed to all of that, Thanks. Are there other indicators we could be looking at to see/"measure" the QT effect?
In my book the FED will rise the rates measly .25% just to attempt to regain credibility which they lost long time ago among the population but most of all to bailout Germany where exports are collapsing as we speak just after a month of strengthen euro.
Having said that FED will also use a new facility of QE, not calling it QE ,to calm down their own girlymen cronies TBTF (F for fuck with).
But why? because against their propaganda they need to raise the rates to be able to coerce the bond holders to sell what they are reluctant to sell since they ironically, consider those assets as stable a must in their portfolio, low risk and do not want to load up with more junk, creating illiquidity in the market. Yes, the QE causes illiquidity in the low risk bonds. The ECB set up NegIRP only to allow for QE to somewhat work but it does not.
In the current condition QE cannot work but if the interest rate is increased it would force those remaining holdouts to sell to the FED and stay in cash or buy more junk, not something they want to do due to high risk and low yield.
For what really is going down read:
https://contrarianopinion.wordpress.com/economy-update/
Another wrench in the works (albeit smaller than the amounts talked about here) is the additional buyers of treasuries needed to fund the depleation of the SS and Medicare "trust funds" as the baby boomers retire. There's a couple of trillion more in debt that has to be rolled over to REAL buyers (or the Fed) just as this great unwind is ocurring. This is starting to look like the mother of all headwinds.
When you view the amount of QE needed to oppose the QT that has been and will be brought by the world and by the Fed, you have to look at the credibility of the currency in the eyes of the world and the US. The world is dumping the US dollar because it has no credibility now....any further expansion of the feds balance sheet will immediately begin the hyperinflationary period. The only way to stem the massive stock market decline we are facing is for the QE to begin again. A major headwind is that Japan and Europe have no more of their treasuries to buy, so only us QE is left.
I am wondering whether some solution for the Social Security problem might be used to suck up all those Treasuries? It will need some big source to buy them up and Social Security might be the ticket?
Either that or a myRA requirement.
Either way it will be presented as a masterful solution to two problems; and the slight of hand will be accepted by the pundits and "jouornalists". The game will continue and Goldman and Chase will make much profits.
I'd love to lose my social security number at the bottom of the lake with my PMs and firearms.
Crash risk.
Bump institutions into UST.
Continue with pass the baton strategy.
Observe ECB and JGB fail.
Then come try to save the day with QE4. Between now and then could be lotta movement down in risk and PMs which guys like Schiff can't seem to grasp.
'More easing while tightening' ....yea whatever Peter.
Tightening from abroad necessitating easing domestically lest the crash come too soon. Capeesh?