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The Global Central Bank Put In All Its Visual Glory

Tyler Durden's picture




 

With second quarter earnings set to start today, there is surprisingly little excitement. Why? Because market participants, like well-trained Pavlov dogs, have finally understood what we meant in January of 2010, when we said that the "the only relevant pieces of financial information are contained in the Fed's H.4.1 and H.3 statements", i.e., the Fed's flow of reserves. The only difference since then is that the Fed's script has been sent out around the world, and now every central bank in the developed (and developing) world is doing just what Bernanke first started on March 18, 2009 with the massive expansion of the Fed's balance sheet, which (for the time being has) marked the S&P bottom. In fact, as more and more people focus solely on reserve and credit formation (most of them wrongly, but you can't get everything), liquidity conduits, the flow vs stock debate (where even career economists are grasping that it is all about the flow), the conclusion is that, ironically, we have all now become 'Austrians'. Which means that the sole driver of risk in the past 3 years has been nothing but continued pumping of liquidity into markets by central banks: aka the Global Central Bank Put. How does this look visually? The below summary charts showing global balance sheet expansions should blow everyone's minds.

Historically:

And in absolute terms:

Some parting thoughts from JPM:

  • Central bank balance sheets are back in the limelight as the Bank of England restarts its asset purchase programme and the SNB is engaged in de facto unlimited FX intervention, selling Swiss francs equivalent to more than 10% of GDP per month.
  • Once avant garde, balance sheet expansion is now very much established as a conventional tool of monetary policy. This chart pack compares the relative size and growth in central bank balance sheets and monetary bases and reviews the empirical relationship between QE and exchange rates.
  • No central bank has expanded its balance sheet or the monetary base as comprehensively as the SNB – its assets have grown by 54% of GDP since 2008 compared to 17.6% from the BoE (with another 3% announced this Thursday), 17.2% from the ECB, 13.1% from the Fed and a comparatively stingy 7.2% from the BoJ. The central bank with the healthiest economy has thus delivered the most aggressive expansion, that with the highest inflation the second most aggressive, while the central bank with greatest structural deflation has delivered least easing – an odd ranking to say the least.
  • Balance sheet expansion has been confined to Europe in the past six months, headed by the SNB, then the BoE and the ECB. The Fed and the BoJ have sat on their hands. This divergence remains a fundamentally positive force for the dollar and yen against European currencies.
  • Bilateral exchange rates remains relatively well correlated with the relative size of central bank balance e sheets. The correlation between EUR/USD and the difference between the Fed and the ECB's assets base is -75% over 2 years and -90% over the past year. The empirical evidence supports a monetarist interpretation of what central banks are doing - balance sheet expansion creates inflation risks, which adversely affects exchange rates.
  • The one exception to this was EUR/CHF but even here the franc is now responding to the SNB’s untrammeled money creation. The question is – will the SNB flinch at the inflation risk that its currency peg inevitably necessitates? We are sceptical of its appetite to create inflation and will keep a close eye on the extent to which continued its ongoing FX intervention is unsterilized or not (FX intervention in May was de facto half sterilised, in that money base creation was only one half the amount of FX intervention).
  • The BoE continues to be the most assertive monetiser of domestic debt. The latest £50bn expansion will take its total debt purchases financed by the creation of base money to 25% of GDP. The ECB could yet deliver a third LTRO, but until it does this relatively faster pace of BoE expansion should at least put a floor under EUR/GBP, if not justify a modest appreciation. Relative balance sheets explain 55% of the performance of EUR/GBP over the past year.
 

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Mon, 07/09/2012 - 10:12 | 2598542 LULZBank
LULZBank's picture

The Boner charts Bitchezz!!

Mon, 07/09/2012 - 10:12 | 2598545 mrktwtch2
mrktwtch2's picture

its worked for the last 4 hrs..when will it stop??

Mon, 07/09/2012 - 10:15 | 2598553 Jason T
Jason T's picture

call the Dr.!   Paging Ron Paul..Paging Ron Paul

Mon, 07/09/2012 - 10:35 | 2598570 FEDbuster
FEDbuster's picture

Oh, oh the damage done.....  milk, blood to keep from running out.

http://www.youtube.com/watch?v=k0t0EW6z8a0

What I need is a big, fat magic marker....

http://www.youtube.com/watch?v=ZOoJoTAXDPk

Mon, 07/09/2012 - 10:12 | 2598546 zero19451945
zero19451945's picture

I love reading sites like Seeking Alpha where the commenters talk about earnings, cash flow, and all the other marks of a quality company.

I feel like saying to them "Do you think any of this shit actually matters?"

Mon, 07/09/2012 - 10:15 | 2598558 fuu
fuu's picture

Hahah at SNB.

Mon, 07/09/2012 - 10:29 | 2598584 unununium
unununium's picture

At least the SNB has SF 245B in foreign currency.

Mon, 07/09/2012 - 10:32 | 2598593 LULZBank
LULZBank's picture

For SNB, fun will begin when the CHF denominated mortgages in Eastern Europe start going sour.

They are printing like bitchezz in anticipation.

Mon, 07/09/2012 - 10:39 | 2598614 swissaustrian
swissaustrian's picture

You should not forget our domestic real estate bubble. That's a way bigger problem.

If you wanna read on that, go here:

http://www.ubs.com/global/en/wealth_management/wealth_management_researc...

At least it seems like the regulators are trying to cool it down by increasing reserve requirements for mortgages.

Mon, 07/09/2012 - 10:45 | 2598628 LULZBank
LULZBank's picture

... and yet the construction goes on like crazy... Probably soon to be ghost towns.

I cant wait for the bubble to pop.

Mon, 07/09/2012 - 11:00 | 2598673 swissaustrian
swissaustrian's picture

Well, I wouldn't say "ghost towns" because there is actual scarcity of living space in the cities.The problem is a divergence of rents and sale prices so far (it might change in the future).

The tourism areas are a different story. Vacation home and appartment construction is booming there as well. The buyers are mostly foreigners, many of them using Swiss real estate for money laundering purposes (especially the Russians, imagine 50+ million in cash for lakefront estate in Geneva). However, we recently passed an ammendment to the constitution limiting the number of secondary real estate holdings. So the "ghost town" problem is beeing addressed.

Another part of the problem is a kind of developing subprime market. Due the very low interest rates, poor people can afford mortgages. Same regional banks offer deals with virtually no money down. Once, interest rates rise, this is going to be very ugly. However, it's only going to affect low quality real estate.

Mon, 07/09/2012 - 10:34 | 2598601 swissaustrian
swissaustrian's picture

Make that 365bn as of July1

Mon, 07/09/2012 - 10:19 | 2598564 disabledvet
disabledvet's picture

QE is a collosal failure when it comes to generating economic growth. The winner has been government debt markets and simply put "that's why growth stinks." hence the theory that somehow various Central Bankers have somehow colluded to push up equity prices is simply false. Indeed given the anemic growth it's hard to call this clearly false "put" (just look at Banking stocks!) even an "ancillary effect." having said that still doesn't mean the economy and equities grow as a consequence in my view. The key is not Libor manipulation but the reserve currency status of the dollar which still has been maintained somehow (?!)...and the political ... is it stability?....engendered by 10 plus years of war.

Mon, 07/09/2012 - 10:33 | 2598594 All Risk No Reward
All Risk No Reward's picture

>>QE is a collosal failure when it comes to generating economic growth<<

QE wasn't meant to fix the unfixable:

http://market-ticker.org/akcs-www?get_gallerynr=3115

Weapons of Mass Debt

http://www.keepandshare.com/doc/3324744/wmdebt-graph-3-79k?tr=77

Rather, it was meanty to quantitatively ease "inner party" losses while, simultaneously, saturating society with as much debt as possible.

Debt Money Tyranny

http://www.keepandshare.com/doc/3325954/debt-dollar-tyranny-2-54k?tr=77

As you'l clearly note in the Debt Money Tyranny chart, above, BAILOUTS ACCELERATE SOCIETAL BANKRUPTCY!

It has been an astounding success when viewed in its proper context.

The "inner party" sent Bush out claiming "they hate us for our freedomss" (which is why "they," the inner party, uses their Presidential Puppet Show to eliminate our freedoms), they sent out Bush to proclaim "the OWNERSHIP society" (you are OWNED b*es!) and they put Andrew "I Killed the bank" Jackson on their $20 debt based Federal Reserve enslavement "note."

The narrative is well funded and...  false.

Grasp for reality...

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

The Ultimate History Lesson:   http://www.youtube.com/playlist?list=PL463AA90FD04EC7A2

The Ultimate history Lesson Commentary: https://www.tragedyandhope.com/th-films/the-ultimate-history-lesson/comm...

 

Mon, 07/09/2012 - 11:06 | 2598687 ghenny
ghenny's picture

QE is much simpler than that.  It has two purposes.  First it is designed prevent a drop in real incomes for the US Middle Class relative to developing countries who have the same education and technology but get paid one fifth what we get. In a world of quasi free trade that cannot continue without government intervention to prevent the equalization.  Second, it is designed to allow the baby boomers to cash out before the economic collapse as they selfishly leave the younger generations to suck it up and become serfs to pay off our profligacy and irresponsible behavior. 

Mon, 07/09/2012 - 11:36 | 2598741 Alea Iactaest
Alea Iactaest's picture

I think ARNR got it right. When viewed in the proper context everything since 2008 has been a smashing success. To think differently is to think like a muppet.

In simple terms, if you were a central banker and wanted to consolidate your power over pretty much everything then it would be hard to come up with a better plan than issuing massive amounts of debt that can NEVER be repaid simply to lay claim at a later date to ALL assets, worthy or not.

"He who tampers with the currency robs labor of its bread."
-- Daniel Webster

The goal is not to ease unemployment or jump start the economy. The goal is to own everything, unchallenged. Greece sells Mikonos to the highest bidder? Nothing compared to the fire sale that will occur in the USA. (And all you smart people holding land debt free hold on, can you say 'eminent domain'? I knew you could.)

Mon, 07/09/2012 - 13:01 | 2598978 brianbbad
brianbbad's picture

What is the source of that Henry Ford quote? I don't doubt the validity of its content, but when did Ford say that?

Mon, 07/09/2012 - 14:48 | 2599391 TPTB_r_TBTF
TPTB_r_TBTF's picture

He said it sometime before March 19, 1937.

Attributed to Henry Ford by Charles Binderup (March 19, 1937), Congressional Record—House 81:2528. The quote is preceded by "It was Henry Ford who said, in substance, this", which indicates that this is likely just a paraphrase, not an exact quote.

http://en.wikiquote.org/wiki/Conspiracy

Mon, 07/09/2012 - 12:17 | 2598835 cranky-old-geezer
cranky-old-geezer's picture

 

 

QE is a collosal failure when it comes to generating economic growth. The winner has been government debt markets and simply put "that's why growth stinks."

QE never was meant to help the economy nor stocks.  It's purpose was to keep the bond market from collapsing.  Fed bought bonds, not stocks.  None of that money went to business lending.  In fact business lending was cut back even more.

It was strictly to help Wall Street.  They couldn't care less about Main Street.

"Helping the economy" was just a cover story to fool the sheeple.

Mon, 07/09/2012 - 10:20 | 2598567 Shizzmoney
Shizzmoney's picture

Who needs a World Currency when you have investment houses (aka TBTF banks) and Central Banks all around the world doing the exact same thing?

Mon, 07/09/2012 - 10:23 | 2598573 anarchitect
anarchitect's picture

It would be interesting to also see the BoC, RBA, and PBoC.

Mon, 07/09/2012 - 12:01 | 2598799 earleflorida
earleflorida's picture

be patient grasshopper,... the 'global governance of a new world order hegemony', is currently ahead of schedule   

Mon, 07/09/2012 - 12:47 | 2598917 Money 4 Nothing
Money 4 Nothing's picture

Actually, Syria is their stumbling block right now, their about 5-6 months behind schedule of bombing Iran. They need Syria first.

Mon, 07/09/2012 - 10:25 | 2598574 RobotTrader
RobotTrader's picture

The more assets they pile on their balance sheets, interest rates crash even faster.

 

A true modern miracle of finance.

Mon, 07/09/2012 - 10:49 | 2598626 gjp
gjp's picture

They're buying their own government's bonds, for fuck's sake.  At premium prices.  Of course interest rates are low.  It hardly reflects private market demand.

How is that miraculous?  It's a fucking circus.

Mon, 07/09/2012 - 10:27 | 2598576 orangedrinkandchips
orangedrinkandchips's picture

More COWBELL god dammit!

 

Mon, 07/09/2012 - 10:59 | 2598659 ebworthen
ebworthen's picture

Cowbell?

http://www.youtube.com/watch?v=NCZcIrSAT7I

(Explicit cowbell at 0:45, 2:15 total, opens in new window)

Mon, 07/09/2012 - 10:28 | 2598581 viator
viator's picture

SNB hanging up there at 300/600%. Are they going for 1000%?

Mon, 07/09/2012 - 10:29 | 2598586 FXPortent
FXPortent's picture

Is SNB an acronym for Snickers Bar?

If so, I'm kind of hungry....

Mon, 07/09/2012 - 11:23 | 2598718 orangedrinkandchips
orangedrinkandchips's picture

ONLY if it's frozen....not much better than a frozen snickers.

Mon, 07/09/2012 - 10:30 | 2598591 HurricaneSeason
HurricaneSeason's picture

They need negative interest rates for the short term. Greece could borrow a couple hundred billion and collect 2 or 3% on the priciple for a set period of time. All negative interest rates could be deductions for the new Obama international tax.

Mon, 07/09/2012 - 10:39 | 2598600 unununium
unununium's picture

"Balance sheet expansion has been confined to Europe in the past six months"

What would happen if the Fed announced it was conjuring over $1T in 30-year monetized refinancing for the USGov?

Because that's exactly what QE1+2 in combination with Operation Twist is.

Mon, 07/09/2012 - 10:36 | 2598604 Rainman
Rainman's picture

O/T.....Alcoa projected to take an 84% earnings dump due to ongoing aluminum glut. 

 

http://www.bloomberg.com/news/2012-07-09/alcoa-profit-seen-plunging-81-in-eighth-year-of-surplus.html

 

Mon, 07/09/2012 - 10:41 | 2598619 asteroids
asteroids's picture

Printing money doesn't solve the base problem. Way too much debt. That debt gets rolled over and more money gets printed. This is stupidity squared. There is no job creation, no growth, just can kicking. The cycle must be broken by someone going bust. If not then everyone might go bust. The current set of politicians don't have the courage to do what needs to be done.

Mon, 07/09/2012 - 10:46 | 2598631 midgetrannyporn
midgetrannyporn's picture

Printing money doesn't solve the base problem.

 

It solves the only problem they care about, themselves.

Mon, 07/09/2012 - 10:42 | 2598621 GolfHatesMe
GolfHatesMe's picture

market turns at 10:30, Good morning Mr. Sack.

Mon, 07/09/2012 - 10:48 | 2598634 LMAOLORI
LMAOLORI's picture

 

“If the Fed is going to keep this up they will be forced to buy more expensive issues,” said Michael Cloherty, head of U.S. interest rate strategy at RBC Capital Markets in New York, a primary dealer, in a telephone interview July 3. “If you think the Fed is going to have to buy some issues very aggressively it makes it difficult to be short, so you are very reluctant to sell a large block of that to anyone.”

Wall Street Banks Decline Bernanke's Twist, Hoard Treasurys

Mon, 07/09/2012 - 10:53 | 2598645 RiverRoad
RiverRoad's picture

The repricing of daffodils is always so painful.

Mon, 07/09/2012 - 11:01 | 2598678 ebworthen
ebworthen's picture

...and black tulip bulbs...

Mon, 07/09/2012 - 10:55 | 2598653 adr
adr's picture

anyone want to take a stab at explaining the crude chart today? WTF

Or are multiple swings of over $.50 within an hours time normal?

Today the gas price analyst tried to explain that the reason why gas went up $.35 in one day, was a lag from last week's crude spike.

He forgot to mention that gas prices never fell below the normal level of $90 crude. We're paying more for gas at $84 than we were at $95. But I'm sure there is a rational explanation for it, right?

Mon, 07/09/2012 - 11:05 | 2598686 ebworthen
ebworthen's picture

They're still selling us what they paid $100 a barrel to refine.

When they start refining the $84 stuff they will be charging for the $95 extant barrel price.

Keep refined gas prices high as barrel costs go down, and ramp the prices up for refined gas ahead of any spike in barrel price is the game.

Short answer = maximize profit (what are we going to do about it, walk?).

Mon, 07/09/2012 - 11:43 | 2598755 swissaustrian
swissaustrian's picture

Brent is a much more reliable indicator than WTI, Brent is at $99.

US diesel prices follow Brent not WTI: http://www.pmbug.com/forum/f13/pms-rising-sharply-iran-war-alert-292/ind...

I don't know about regular gas, but it might be similar...

Mon, 07/09/2012 - 11:00 | 2598676 francis_sawyer
francis_sawyer's picture

 "The Global Central Bank Put In All Its Visual Glory HOLE"

~~~

There, fixed it...

Mon, 07/09/2012 - 11:50 | 2598775 eddiebe
eddiebe's picture

Just maybe the Swiss will be the ones to force a link to the PM's. If the big boys let them, of course, which is doubtful. Still an awesome sight. I don't know why they didnt just let their currency appreciate and write their citizens monthly bonus checks? An other option would be to buy back all the gold they sold a few years back, again, if the big boys will let them. What a mess! Fucking banksters!

Mon, 07/09/2012 - 12:10 | 2598814 swissaustrian
swissaustrian's picture

We've launched a popular intiative to require the SNB to hold 20% of it's reserves in gold stored domestically:

http://www.pmbug.com/forum/f2/switzerland-referendum-prohibition-gold-sa...

Mon, 07/09/2012 - 12:29 | 2598819 Money 4 Nothing
Money 4 Nothing's picture

And for my smart ass comment for the day. "Go Gold!" It's in such a tight trading range that long paper doesn't stand a chance and price discovery won't be what everyone *thinks.

Their using in house paper to keep it down or it blows the cover off Ben Bernanki's claims of 2-3% inflation. You know it has to come apart, this shit is unsustainable, war is always an option, WWII bailed us out of the Depression, so use your head.

You want a real investment? Passports or Bullets. Gold will re-build Nations after a crash, we just don't know how the "crash" will be initiated, use your imagination. There's your free stock tip for the Month from a Geo Political study.

Have a nice day.

-BD

 

 

Mon, 07/09/2012 - 11:55 | 2598787 eddiebe
eddiebe's picture

I was just at the grocery store marveling at the rate prices are rising. The checkouts were'nt busy, so I commented to the checker that grocery prices were really taking off. She nodded her assent. I then said: I bet you your wages aren't going up though.' She just sort of smiled with more than a hint of disgust.

There, the consequences of the above chart action.

Mon, 07/09/2012 - 12:35 | 2598882 slewie the pi-rat
slewie the pi-rat's picture

in slewienomics:  as long as the checks are in the mail, there is no problem

everything is still screwed down VERY tight

and as for the past several months, that is really all that is happening

staaaahbeeeelietaaaay

Mon, 07/09/2012 - 14:20 | 2599264 q99x2
q99x2's picture

I demand more of Rothschild's money. They should give it all back before this blows up.

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