"Nothing Else Matters": Central Banks Have Bought A Record $1.5 Trillion In Assets In 2017

One month ago, when observing the record low vol coupled with record high stock prices, we reported a stunning statistic: central banks have bought $1 trillion of financial assets just in the first four months of 2017, which amounts to $3.6 trillion annualized, "the largest CB buying on record" according to Bank of America. Today BofA's Michael Hartnett provides an update on this number: he writes that central bank balance sheets have now grown to a record $15.1 trillion, up from $14.6 trillion in late April, and says that "central banks have bought a record $1.5 trillion in assets YTD."

The latest data means that contrary to previous calculations, central banks are now injecting a record $300 billion in liquidity per month, above the $200 billion which Deutsche Bank recently warned is a "red-line" indicator for risk assets.

This, as we said last month, is why "nothing else matters" in a market addicted to what is now record central bank generosity.

What is ironic is that this unprecedented central bank buying spree comes as a time when the global economy is supposedly in a "coordinated recovery" and when the Fed, and more recently, the ECB and BOJ have been warning about tighter monetary conditions, raising rates and tapering QE.

To this, Hartnett responds that "Fed hikes next week & "rhetorical tightening" by ECB & BoJ beginning, but we fear too late to prevent Icarus" by which he means that no matter what central banks do, a final blow-off top in the stock market is imminent.

He is probably correct, especially when looking at the "big 5" tech stocks, whose performance has an uncanny correlation with the size of the consolidated central bank balance sheet.

Comments

Polemos Fri, 06/09/2017 - 09:14 Permalink

Debt is negative potential energy.A world without debt is a world whose potential energy is zero.When the potential energy is zero, the actual energy is zero too:

"And where did the energy come from to create this matter? The answer is that it was borrowed from the gravitational energy of the universe. The universe has an enormous debt of negative gravitational energy, which exactly balances the positive energy of the matter."--Hawking, Stephen W. Black Holes and Baby Universes and Other Essays. Bantam Books, 1993, p. 97

So, those who hate debt hate life itself. The idea that all actual energy has been borrowed into existence, at the cost of incurring a debt in the form of negative potential energy, belongs not to Hawking but to Lord Kelvin:

"Thomson had adopted in 1854 the view that 'the potential energy of gravitation may be in reality the ultimate created antecedent of all the motion, heat, and light at present in the universe'. In other words, it was 'the original form of all the energy in the universe'."--Smith, Crosbie; Wise, M. Norton. Energy and Empire: A Biographical Study of Lord Kelvin. CUP, 1989, p. 533

Everything is as it should be. Praise the bankers--because of them you are alive. Enjoy the inflationary free lunch known as the universe:

During inflation, while the energy of matter increases by a factor of 1075 or more, the energy of the gravitational field becomes more and more negative to compensate. The total energy—matter plus gravitational—remains constant and very small, and could even be exactly zero. Conservation of energy places no limit on how much the Universe can inflate, as there is no limit to the amount of negative energy that can be stored in the gravitational field. This borrowing of energy from the gravitational field gives the inflationary paradigm an entirely different perspective from the classical Big Bang theory, in which all the particles in the Universe (or at least their precursors) were assumed to be in place from the start. Inflation provides a mechanism by which the entire Universe can develop from just a few ounces of primordial matter. Inflation is radically at odds with the old dictum of Democritus and Lucretius, "Nothing can be created from nothing." If inflation is right, everything can be created from nothing, or at least from very little. If inflation is right, the Universe can properly be called the ultimate free lunch.—Guth, Alan. The Inflationary Universe. Beam Line, fall 1997, p. 19

Of course there is no limit to the amount of negative energy that can be stored in the gravitational field. But there is a limit to the temperature of matter—the hotter matter becomes, the faster it radiatively "evaporates" into the ever-colder ambient space. The end of the inflationary free lunch is coming apace and hastening:

All change is relative. The universe is expanding relatively to our common material standards; our material standards are shrinking relatively to the size of the universe. The theory of the "expanding universe" might also be called the theory of the "shrinking atom". <...> Let us then take the whole universe as our standard of constancy, and adopt the view of a cosmic being whose body is composed of intergalactic spaces and swells as they swell. Or rather we must now say it keeps the same size, for he will not admit that it is he who has changed. Watching us for a few thousand million years, he sees us shrinking; atoms, animals, planets, even the galaxies, all shrink alike; only the intergalactic spaces remain the same. The earth spirals round the sun in an ever?decreasing orbit. It would be absurd to treat its changing revolution as a constant unit of time. The cosmic being will naturally relate his units of length and time so that the velocity of light remains constant. Our years will then decrease in geometrical progression in the cosmic scale of time. On that scale man's life is becoming briefer; his threescore years and ten are an ever?decreasing allowance. Owing to the property of geometrical progressions an infinite number of our years will add up to a finite cosmic time; so that what we should call the end of eternity is an ordinary finite date in the cosmic calendar. But on that date the universe has expanded to infinity in our reckoning, and we have shrunk to nothing in the reckoning of the cosmic being. We walk the stage of life, performers of a drama for the benefit of the cosmic spectator. As the scenes proceed he notices that the actors are growing smaller and the action quicker. When the last act opens the curtain rises on midget actors rushing through their parts at frantic speed. Smaller and smaller. Faster and faster. One last microscopic blurr of intense agitation. And then nothing.
—Eddington, Arthur. The Expanding Universe CUP, 1933, pp. 90–92

In 1998, Adam Riess and his team discovered that the apparent expansion of intergalactic spaces is accelerating. On 5 April 2016, Adam Riess et al. announced that the rate of the acceleration is itself increasing—over the three years since 21 March 2013, when the Planck space observatory published the local Hubble constant value, the apparent expansion of intergalactic spaces had accelerated by nine percent more than expected: Hirsch, Arthur. Our universe is expanding faster than scientists predicted, study suggests. Hub, 3 June 2016Thus the inflationary debt pyramid known as the universe has reached its finale. Energy is conserved, so in order to cancel the incurred negative energy (debt), you would need to spend the same amount of positive energy. But the virial theorem dictates that the amount of negative potential energy is always bigger than the amount of positive actual energy, because the system radiates away a half of the borrowed positive energy but retains the negative energy in its entirety:

After each infinitesimal step of collapse the star has to wait until it has radiated away a half of the released gravitational energy before it can continue to contract.
—Böhm-Vitense, Erika. Introduction to Stellar Astrophysics CUP, 1992, p. 29

That is why a system cannot cancel its debt. And it should not, because debt (negative potential energy) is the system's binding energy or synergy:

In short, synergy is the consequence of the energy expended in creating order. It is locked up in the viable system created, be it an organism or a social system. It is at the level of the system. It is not discernible at the level of the system. It is not discernible at the level of the system's components. Whenever the system is dismembered to examine its components, this binding energy dissipates. An ordered library offers systemic possibilities, such as rapid search, selection, and aggregation, that cannot be explained by looking at the books themselves. These possibilities only exist because of the investment made in defining and creating interrelations between the books, their physical arrangement and the catalogues.—J.-C. Spender, Organizational Knowledge, Collective Practice and Penrose Rents In Michael H. Zack (ed.), Knowledge and Strategy, Routledge, 2009, p. 125

The ultimate embodiment of the universe's debt is the wisest man.

AldousHuxley Ring_Of_Fire Fri, 06/09/2017 - 12:31 Permalink

They decide who's turn is it to print at G7.....BOJ and ECB keeps printing.  US QE 1,2,3....ended 2014Japan's QQE...started 2013Now ECB's turn.....started 2015 as far as vindication for bears. central banks will continue to print...think of it as the modern day catholicism....orthodoxy exploiting the ignorance of the masses, while enlightenment spreads via communication mediums facilitated by the internet.Internet is the new printing press allowing democratization of knowlege, truth, and financial/social literacy. You no longer need to consult Latin learners for this special knowledge of how world works. You can see in plain visuals that central bankers, executives, government officers have no legitemacy over your life.   

In reply to by Ring_Of_Fire

Polemos Hal n back Fri, 06/09/2017 - 10:12 Permalink

Debt (negative potential energy)  is primary, all the rest is derivative from debt.Debt does not care whether its growth is appropriate or not. It just grows. This principle is known as the minimum total potential energy principle, which can be rephrased as the maximum total debt principle:Out of all possible paths, nature always chooses the path of maximal debt increase.

In reply to by Hal n back

OpenThePodBayDoorHAL Polemos Fri, 06/09/2017 - 18:07 Permalink

OK, I'll bite. You seem to be conflating "debt" with "energy", but you neglected to think about what physicists call "conservation of energy". This means that your "debt/energy" is not being magically created, it's just moving around. So no, there is no "energy free lunch".Then, on the subject of energy, I would ask what you think the purpose of "money" is. I'll answer: money stores work (the energy of productivity) over time. It also makes it possible to conveniently move that stored work from one place to another, and to exchange it for other forms of stored work like vegetables and big screen TVs.So when you decouple money creation from work (energy) like we do today with debt-based fiat money you get all sorts of second-order effects that devalue work. Work is when someone expends energy to do something productive like growing a crop or building a widget. Money that required no work to produce cannot store energy and so its stored work value eventually goes to zero.Mankind has known this for millennia and so has used gold as money, this is because everyone knows that gold requires work to produce in usable form. That simple fact means it can be used and exchanged as a reliable proxy for actual work (expenditure of energy). Bitcoin attempts to mimic this by requiring computer work and electrical energy to produce.Another simple example is silver. In 1964 the minimum wage was $1.25, in other words five silver quarters. The silver value of five silver quarters today is approximately $16.00, a reasonable minimum wage. But was the value of 1 hour of work conserved by the face value of the quarters? Hint: no.Suggest the book Gold: The Once and Future Money to start your re-education process. Good luck. 

In reply to by Polemos

bluez OpenThePodBayDoorHAL Sat, 06/10/2017 - 09:36 Permalink

You say:"....money stores work (the energy of productivity) over time."I once had a smart-ass economist declare that "productivity = output (value) / input (materials + labor)". So "productivity" is already spoken for by the evil economists.Ever since then I have used the term "productionality" instead.Beyond that trifle, your points make a lot of sense.(Of course though, increasing automation has distorted the concept of work.)

In reply to by OpenThePodBayDoorHAL

NoDebt Polemos Fri, 06/09/2017 - 09:39 Permalink

I've been reading about particle physics since before CERN was even built.  I know how they found the "God Particle" (Higgs Boson) at ~126 GeV.  Muons, Gluons, Leptons, Quarks, the Standard Model, TOE... yeah, I know about all that shit already.  Now what is it you want to teach me about "finance physics" again, son?  

In reply to by Polemos

Okienomics Polemos Fri, 06/09/2017 - 10:27 Permalink

What an epiphany!  He's right, No Debt.  "In the beginning, the earth was without form and void.  Then God said, 'Let there be debt.'"  Everything follows from there.  Until there was debt (potential energy) there was nothing.  Fact is, Bankers are God (the creator) and you'd better fall to your knees in worship, else they will smite you.

In reply to by Polemos

Okienomics OverTheHedge Fri, 06/09/2017 - 10:35 Permalink

I love the "scientific concensus" thing.  As an economist, I can assure you the scentific method was mentioned not ONCE in any of my academic training.  But models.  Ooooh, we like models (not the leggy kind).  WE CAN WORK WITH MODELS AND CALL THEM SCIENCE!.  Funny thing is, that's exactly what the "climate science" folks do.  Our model is reality and anyone who disagrees is intellectually inferior.  Oh, and by the way, the whole "potential energy" thingy is a metaphor, Polemutt.  Metaphor is a story, not reality, regardless of how much you really really REALLY like your story... unless you're on drugs.

In reply to by OverTheHedge

logicalman Okienomics Fri, 06/09/2017 - 11:22 Permalink

Scientific concensus was, until Copernicus, that the sun went round the earth. Didn't make it correct, just the best that anyone had come up with until then.Until Kepler came along, the planets orbits were circular, not eliptical.There are many examples of science being 'wrong' if that's how you want to look at things, but in the cases of Copernicus and Kepler, they were as 'right' as they could be at the time, given the instruments and information available at the timeThe main thing that makes science worth the effort is that it tests itself all the time.Beats the crap out of chicken's entrails!A lot of sciences 'problems' arise when the results are politicised. Harldly surprising given the average scientific literacy of politicians.

In reply to by Okienomics

LiteBeeer Polemos Fri, 06/09/2017 - 22:07 Permalink

There is no gravity. That theory doesn't stand.Buoyancy and density explains it all.BTW, there is no big-bang. Evolution is a lie.The earth is flat and the sun is a moving bulb under the dome.There is no space, nobody has been to the moon.There is no hubble telescope but SOFIA on a Boeing 747.Sattelites are lifted by huge balloons.RESEARCH before laughing out of your trained ignorance.

In reply to by Polemos

Polemos ejmoosa Fri, 06/09/2017 - 11:05 Permalink

Initially, a particle's potential energy is not negative, so that the particle is not self-gravitationally confined and is spread out over the entire universe. Such a particle does not even exist. But when the particle shrinks to a less than infinitely large radius, it incurs a negative gravitational potential energy (a debt), while the particle's zero-temperature heat becomes intensified to a nonzero temperature (i.e., borrowed into actuality) and radiated away. Having radiated away a half of the borrowed portion of energy, the particle shrinks again and thus borrows another portion of energy:

After each infinitesimal step of collapse the star has to wait until it has radiated away a half of the released gravitational energy before it can continue to contract.—Böhm-Vitense, Erika. Introduction to Stellar Astrophysics CUP, 1992, p. 29

In reply to by ejmoosa

Polemos logicalman Fri, 06/09/2017 - 11:59 Permalink

Energy is the capacity to do work. Money buys work. Therefore, money is a symbol of energy.Debt is negative money. Therefore, debt is negative energy, also known as gravity.The universe is governed by the minimum total potential energy principle, which can be rephrased as the maximum total debt principle:Out of all possible paths, nature always selects the path of maximal debt accrual.

In reply to by logicalman

MaxMax Haus-Targaryen Fri, 06/09/2017 - 09:41 Permalink

If the interest rate on the debt is lower than the increased productivity, then the debt makes sense. Debt also means that someone owes something to someone else; the debt of one person is the asset of another.  Assets give you power over another.  Those that own the debt are terrified that their assets might be wiped out with defaults.  Since the owners are the ones in power, they simply creating new debts to pay the old debts. Debt, slavery, marriage and power are all closely related.  The book Debt: The First 5,000 Years is a good read.

In reply to by Haus-Targaryen

Polemos MaxMax Fri, 06/09/2017 - 12:00 Permalink

A portion of latent (zero-temperature) heat becomes borrowed, through its self-gravitational shrinking, into overt (nonzero-temperature) heat. Thus, debt (negative potential energy) increases the heat's temperature above the temperature of the ambient, so that a half of the borrowed (i.e. intensified) heat becomes radiated away, at which moment the particle of heat undergoes another self-gravitational shrinking. After every shrinking, the particle's temperature is higher than after the previous shrinking, so that the borrowed heat becomes radiated away ever faster.That is why any debt is unsustainable. There are no innocuous levels of debt.

In reply to by MaxMax

CNONC Polemos Fri, 06/09/2017 - 09:36 Permalink

Even if I buy the "negative energy" idea, you still have to show me why debt is analogous to negative energy.  In an ordinary, non fractionally reserved economic system, savings, which would be the analogue to positive energy in your model, comes first.  No debt can exist without saving, so positive energy is the sine que non, not the reverse.  In our current system, distorted as it is by modern finance, money, and hence savings, is borrowed into existence, matching your model.  But far from being a virtuous reflection of the natural order, our system is an unsustainable fraud cooked up by the human mind and sustained by force. 

In reply to by Polemos

Polemos CNONC Fri, 06/09/2017 - 11:45 Permalink

The universe is a zero-sum game. Initially, the potential energy is maximal (i.e., zero), while the actual energy is minimal (i.e., zero).For the actual energy to rise above zero, the potential energy must go negative. This negative potential energy (gravity) compresses potential (zero-temperature) heat into actual (nonzero-energy) heat and thus lends the energy "asset" into actuality. The entire material world has been lent into nonzero-temperature actuality by gravity.

In reply to by CNONC

CNONC Polemos Fri, 06/09/2017 - 13:38 Permalink

The universe is not at issue here.  I again ask, why is financial debt analagous to energy?  Economics begins with a human will to action caused by a need or desire to consume.  Marx thought all of human history was described by man's relationship to the materials he consumed.  That may be an overstatement, but it is good functional definition of economics.  Thus, the existence of man and the material world are stipulated in the study of economics.  Any attempt at further reduction is a logical error.  Like subdividing the distance between Xeno's runner and the tortoise, it is logically invalid to reduce economics below its defined starting point.  So how the universe works is not relevant.  You can only, logically, be proposing an analogy.  If so, debt cannot be the sine que non, since, in economic terms, production must preceed consumption.  In terms of your analogy, positive energy exists first, therefore, and not negative energy. 

In reply to by Polemos

Polemos CNONC Fri, 06/09/2017 - 14:21 Permalink

Re: "I again ask, why is financial debt analagous to energy?  Economics begins with a human will to action caused by a need or desire to consume."Energy is capable of doing work and has a "will to action" only when it has been condensed by gravity (i.e., by debt). That is why debt is the father of everything, including the "human will to action".Re: "In terms of your analogy, positive energy exists first, therefore, and not negative energy.""Positive" and "negative" are relative to each other, and neither of them can "exist first".

In reply to by CNONC