637 Rate Cuts And $12.3 Trillion In Global QE Later, World Shocked To Find "Quantitative Failure"

Tyler Durden's picture

2016 is shaping up to be the year that everyone finally comes to terms with the fact that the monetary emperors truly have no clothes.

To be sure, it’s been a long time coming. For nearly 8 years, market participants and economists convinced themselves that the answer was always “more Keynes.” Global trade still stagnant? Cut rates. Economic growth still stuck in neutral? Buy more assets.

It was almost as if everyone lost sight of the fact that if printing fiat scrip and tinkering with the cost of money were the answers, there would never be any problems. That is, policy makers can always hit ctrl+P and/or move rates around. But in order to resuscitate anemic aggregate demand and revive inflation, you need to tackle the core problems facing the global economy - not paper over them (and we mean “paper over them” in the most literal sense of the term).

Well late last month, central banks officially lost control of the narrative. Kuroda’s move into negative territory reeked of desperation and given the surging JPY and tumbling Japanese stocks, it’s pretty clear that the half-life on central bank easing has fallen dramatically.

And so, as the market wakes up from the punchbowl party with a massive hangover, everyone is suddenly left to contemplate “quantitative failure.” Below, courtesy of BofA's Michael Hartnett is a bullet point summary of 8 years spent chasing the dragon... and a list of the disappointing results.

*  *  * 

From BofA

Whether the recent tipping point was the Fed hike, negative rates in Europe & Japan, or simply the growing market dislocations and macro misallocation of resources and wealth, the deflationary theme of “Quantitative Failure” is stalking the financial markets. A multi-year period of major policy intervention & “financial repression” is ending with weak economic growth & investors rebelling against QE.

In short, monetary policies of...

  • 637 rate cuts since Bear Stearns
  • $12.3tn of asset purchases by global central banks in the past 8 years
  • $8.3tn of global government debt currently yielding 0% or less
  • 489 million people currently living in countries with official negative rates policies (i.e. Japan, Eurozone, Switzerland, Sweden, Denmark)
  • -0.92%, the most negative yield in the world (2-year Swiss government bond)

...have in 2016 led to a macro environment symbolized by...

  • BofAMLs Chief US Economist Ethan Harris cutting potential trend real GDP growth in the US to 1.75%
  • inflation expectations in both the US & Europe dropping below 2008 levels & a global profits recession
  • one of the most deflationary recoveries of all-time: in the past 26 quarters the nominal GDP of advanced economies has grown 11%

and a significant impact on Wall Street...

  • a bear market in equities (median stock in ACWI is down 28% from its highs; 45% of global stocks (1123) are down >30% from highs)
  • bear market in commodities (10-year rolling return from commodities is currently -5.1%, the worst since 1938) & credit markets
  • $686bn of market cap loss for global banks since Dec 15th the day before the Fed hiked - and worsening global liquidity conditions, which in-turn will likely cause bank lending standards to tighten further

  • and, most conspicuously, falling bank stocks and falling bond yields suggesting that 6 years of QE has failed to arrest deflation.

*  *  *

What comes next is anyone's guess but with China's credit bubble about to burst in spectacular fashion, we wonder how central banks plan to combat the ensuing hit to the global economy. After all, their counter-cyclical policy room is not only exhausted, they've now taken the easing bias so far into the monetary twilight zone that in Japan's case, things are starting to backfire and are becoming self referential (see the recently canceled JGB auction). 

Throw in the fact that $12.3 trillion in asset purchases has impaired liquidity across markets and you have the conditions for what could turn into a truly harrowing year not only for Wall Street, but for Main Street as well. The same Main Street that was allegedly saved by a "courageous" Ben Bernanke who started us all down this road 8 long years ago.

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Soul Glow's picture

The central banks credibility is fiiiiine!!!!!!

Clockwork Orange's picture

Set up the gallows.  Seriously.

MillionDollarBonus_'s picture

What worries me the most is that an increasing number of voters and politicians are demandning influence over monetary policy. Our Federal Reserve was specificallySPECIFICALLY, set up to be independent of congress. Our government has absolutely no constitutional right to intervene in the affairs of our Federal Reserve, and it's about time we put a stop to political intervention in monetary policy once and for all. It's dangerous and a threat to the stability of the global economy.

Cognitive Dissonance's picture

LOL

Nice. Please refer me to the section of the constitution that authorizes a central bank/Federal Reserve.

Ghost of PartysOver's picture

The Fed has been and always will be a political animal.  Connect the dots.  Who owns the federal reserve?  Who are the largest political donors.  Where did the Fed Governors get their training?  Where do Fed Governors go when the retire from the Fed?

BaBaBouy's picture

Keynesian Next Up..... Quantitative BLOWBACK...

PAPA ROACH's picture

Yet somehow that dickwad Paul Krugman keeps a job.

Temporalist's picture

I can't believe there is only one of him.  If we had just one more Krugman we could easily double or triple the printing efforts.

Crash Overide's picture

So where did the 12.3 trillion go again?

...and where did the 8 trillion from the missing Pentagon budget go again?

 

Somebodies getting rich.

Fish Gone Bad's picture

A lot of bankers got rich. All the people who were the beneficiaries of all the new money got rich.  Janet Yellen's friends "apparently" got rich with her leaking insider information.  Yup, lots of people got rich... others not so much.

Baby Bladeface's picture
Baby Bladeface (not verified) Temporalist Feb 12, 2016 3:31 PM

BofA, Krugman, Bernanke, Yellen, Jeethner, Summers, Wall Street gang, FRBNY, their fraudulous "models" with no adhesion to reality, their fake Nobel's economics trophy (and awarded by a bank, Carl, a Swedish bank!), and entire failurous collection of economics "science" (as it is more alike a religion than a science) still dancing madly backwards around the point that none dare mouth the words of: is not Quantitative Failure and is Qualitative Failure.

Economics are like physicians circa 1600, treat people through elaborated thesis. Any outcoume reinforce the validity of the elaborated thesis. Always esoteric rules, complicated maths, incomprehensible deliberately. Telling people that to understand must get educated to their ways, even more educated and more... until it is found that they have no answers to the simple questions they were asked at the start. At the moment, it parts people between those who made a living out of economics and people who thought they would acquire knowledge through studying economics.

Economics are rotten to the core. They knew what they were setting up and were looking for the current result. All you will get is a circus discussing technicalities. Economics just the bed time story told to cover the real game going on.

Going Loco's picture

'Economics are like physicians circa 1600, treat people through elaborated thesis.'

Brilliant. Absolutely brilliant. I've never seen that before, is it yours? Ought to be emblazoned across the top of the ZH homepage.

sschu's picture

Their analysis ignores the idea of debt saturation.  As they are economists, they should understand marginal utility.  It is very costly that they do not appear to.

Posted on another thread:

To the Keynesian (at least the present day approach) the profit of the bank is the economy as money creation is what drives economic growth.  Hence why they print when the economy is not doing well, to revive growth.  And this worked for years, until it does not, which is when we reach debt saturation.  Clearly the marginal utility of debt has declined if not gone negative, so it does not work anymore.  Old ways die hard.  

So if banks are less profitable, then they do not lend as much and the economy slows.  Since banks make profit on NIM they need a wider spread between lending and deposits and we get negative interest.  

Like the saying goes, there are some things so foolish only an intellectual could believe them.  When you base your analysis entirely on computer models, then it all makes sense.  Von Mises knew better, economics is not an equation, it is a study in human behavior.  

sschu 

The9thDoctor's picture

This QE and rate cuts have been a failure for 99.99% of the public, but it has been a rockstar success for the elite.

Here we are in 2016 and Europe has turned into Sharia ghettos, America has been reduced to slum multifamilies with tenants working at $9 an hour service jobs to where they can't afford the rent and are a paycheck away from living on the streets, all the meanwhile the tech elite are evolving into homo optimus and homo evolutis leaving the rest of humanity in obsolescence.

The movie They Live from 1987 has become more like a documentary.

Citxmech's picture

What's the next step?  Govt issued payments to people in the form of non-dischargable loans?

"Here's your monthy Freedom Loan citizen! - invest wisely because you children are the collatoral. . . "

Relentless's picture

We've had a hundred years of a banking system independent of political control, maybe its time for a political system independent of banker control.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) MillionDollarBonus_ Feb 12, 2016 12:46 PM

That worries me as well but mainly because we all know that Congress could give a rats ass about the citizens either so I'd like to know who they are working for to control monetary policy versus the Fed.  My guess is its the same group and they are just trying to pretend like there are two forces at play but at least we know how the Fed gives its ass fucking, its scary to imagine a new player stepping in this late in the collapse game.

bbq on whitehouse lawn's picture

Wrong on all accounts. Federal reserve was a banking union set up in order to create order out of the choas individual banks going belly up without warning caused when there was a gold standard that banks never followed.
Gold is no longer an issue so there is no need for a union of banks since non of them have gold, cash or anything but account entries.

whstlblwr's picture

Is this the first time in history that all people understand the Central Banks role in the stock market. The wizard behind the curtain? It used to be considered conspiracy theory that Feds bought stock. They are exposed. Extreme moral hazard.

The Real Tony's picture

They think they have it all figured out. Buy stocks rig the stock markets upwards, sucker all the morons in and if we wait long enough the economy will come back and the stocks will march even higher. I think it will all backfire on them.

Big Stapler's picture
Big Stapler (not verified) MillionDollarBonus_ Feb 12, 2016 1:05 PM

By the same laws that set up the Fed, the Fed is supposed to be independent of Goldman Sachs too.

And since you seem more than a bit confused, there is nothing in the Constitution about the Fed at all. The founding fathers specifically, SPECIFICALLY warned against having a central bank at all. The first two Bank of the USA (both set up to fund wars) had their authorizations expire, as Congress decided (realized?) a central bank controlled by lobbyists (Goldman Sachs or otherwise) was as dangerous as one controlled by politicians.

Its time we put a stop to poorly educated people in the White House or blog sites making up and trying to "enforce" their own imaginary laws instead of the ones actually on the books.

Pareto's picture

+1000 MDB!!  he he heeeeee  I like the "It's dangerous and a threat to the stability of the economy."

Bunga Bunga's picture

Wrong. The congress can simply change or even abolish the Federal Reserve Act.

OregonGrown's picture

meh..... Gallows are sooooo 20th century.  I think they use guillotines these days.

 

http://www.nowtheendbegins.com/retired-fbi-agent-tells-patriot-group-tha...

lakecity55's picture

WE will be on the gallows, not TPTB.

Cognitive Dissonance's picture

The addict NEVER understands why s/he can't stop. Therefore s/he continues to do the things s/he wants to do but can't.....to get high/drunk like 'normal' people do and still function like 'normal' people.

Insanity is always self sustaining, self affirming and perfectly logical to the insane.

skinwalker's picture

Every addict I've ever known, including myself, eventually reaches a point where they realize they must stop and do so. That point is different for every person though. 

KnuckleDragger-X's picture

Nobody believes the bullshit, but nobody wants to admit how bad everything really is. Somewhere, sometime soon, we will have a trigger event that causes our house of cards to collapse. Nobody knows what it will be, but the black swan is on final approach for a hard landing......

The9thDoctor's picture

The house of cards is about to collapse on purpose.  It's a well planned out controlled demolition.

Only the elite will be able to afford the cybernetic augmentations while the rest of humanity who can't afford it will be left off to die.

In the future cybernetic enhancements will be an investment, so that way the worker can perform tasks that non-enhanced humans can't.

It's so frustrating that even people who know about conspiracy can't see what lies decades ahead.  If I explained smartphones, twitter, blogs, alternative media, Arab Spring, Islamification of Europe, designer babies,  NIRP, and Snowden's revelations to someone in the year 1995, I would have been laughed out of the room as a sci-fi nut, but here we are it is all common place.  Imagine what 2036 will be like.

I follow up on Silicon Valley trends closely, meanwhile I read forums on people claiming to be "awake" debating 19th century economic philosophies as if they have any relevance in an automated society.

We are so screwed, all the meanwhile polishing brass on the sinking Titanic seems to be trendy nowadays.

KnuckleDragger-X's picture

If plans work like they are supposed to, the Roman empire would still be a going concern. You've decided that you can't win, which means you automatically lose........

Dr. Acula's picture

"debating 19th century economic philosophies as if they have any relevance in an automated society"

People also use logic and math from thousands of years ago.

Truths don't grow old.

Edit: actually subitizing is inwrought in many nonhuman species. I'm guessing it is hundreds of millions of years old.

 

open-range's picture
open-range (not verified) Soul Glow Feb 12, 2016 2:41 PM

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... www.wallstreet34.com

Pumpkin's picture

12.3?  I think that's a bit light.

dimwitted economist's picture

Nope! We're in a Recovery!

Don't be a Doom and Gloomer!

Seasmoke's picture

+250 today. Just like yesterday never even happen. It's like the fucking Truman Show.

BullyBearish's picture

Two words...STAIR   STEP

so much for that's picture

Or Groundhog Day. I've seen this script before.

madbraz's picture

what a "coincidence", just as bill dudley opens his mouth at 10AM...as we approach option expiration next week... incredible coincidence, totally not corrupt.  give him the

 

 

NoDebt's picture

47 million gallons of water and 3 million trips from the water spigot to my pool and it still isn't full.

Why?

Because I never fixed the giant fucking hole in the bottom of the bucket.

hedgeless_horseman's picture

 

 

...the giant fucking hole in the bottom of the bucket.

How else are our "representatives" supposed to get elected, if not for corporate welfare (R) and entitlement spending (D)?

Prudence, frugality, and ethics are generally not a winning platform.

We The People demand MOAR, MOAR-ER, and MOAR-EST!!!

Philo Beddoe's picture

All hail the shit flinging monkeys. 

MadVladtheconquerer's picture
MadVladtheconquerer (not verified) Philo Beddoe Feb 12, 2016 12:59 PM

Right turn, Clyde.

OregonGrown's picture

Alot of "peddling fiction" going on around here, as of late.....

stant's picture

Enough! QE4 already , helicopter$ for the people! I want to have a good time before this blows

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) stant Feb 12, 2016 12:41 PM

I alway saw the Lottery as Helicopter $ for the people.  Putting a large amount of money into the hands of the poorest and least financially saavy people ensures rapid spending as the newly rich lottery ticket winner makes their way back to being poor.  Spreading that money out across a bunch of poor people risks those people accidentally saving some money rather than buying up as many iPads as they can hold.

VWAndy's picture

Its all voodoo economics right. So how bout we toss them five into a volcano?

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Feb 12, 2016 12:39 PM

I don't understand why rate cuts are only in the hundreds, if Central Planners I mean Bankers were serious about getting these economies moving we should be at least in the few hundreds of thousands of rate cuts.  Can NIRP go pass negative 100%?

Arnold's picture

Baby steps insure that they don't overshoot and ruin things.