When "Whatever It Takes" Ends

Via Global Macro Monitor,

On Tuesday,  June 27th,  Super Mario said this,

“Deflationary forces have been replaced by reflationary ones.”  – Mario Draghi

And here is how global 10-year bond yields reacted,


The German 10-year Bund yield increased 77 percent — OK, from a low base —  and bonds across the world from Canada to Australia to the United States were tattooed.

Change In Fundamentals?

Absolutely not!

Bond yields haven’t been trading on economic fundamentals for several years due to central bank financial represssion via quantitative easing (QE), ZIRP and NIRP.   We have been pounding the table on this point,

Lot’s of hand wringing these days about the flattening yield curve.  We still maintain our position that the signal from the bond market is significantly distorted due to the global central bank intervention (QE) into the bond markets.   See here and here


Most of what is happening with the U.S. yield curve is technical. – Global Macro Monitor,  June 22, 2017

Beach Ball Effect

The major central banks have repressed interest rates throughout the world by engineering a structural shortage of high grade sovereign bonds with their quantitative easing (QE) programs.   For example,  as we posted last week, the combined market cap of just two stocks in the U.S. — Apple and Amazon — exceeds the entire stock of U.S. Treasury notes and bonds maturing in 2027-2047 when holdings of the Federal Reserve are excluded.

Market Cap and Treasury Float

This is tantamount to holding a beach ball underwater.  You know what happens when when the ball is released.  Such as when a prominent central banker unexpectedly speaks out that the days of holding that ball underwater may be coming to an end.  We just had a little taste of that this week.

Beach Ball_Draghi



The European Central Bank tried to walk back or dilute Draghi’s comments, but bond markets are not having it.   The train has left the station and the path toward monetary normalization is, at least in rheotric, been entered into the GPS.    The next few months shall be interesting.

Though we think the “correct” or equiblrium price for interest rates on bonds is serveral hundred basis points higher — 2-3 percent real yield plus inflation —  we don’t think they get there “by way the crow flies” or in a straight line.

Several months ago,  we cited a 2012 Federal Reserve paper estimating that yields on the 5-year note should be several hundred basis points higher if not for the recycling of reserves into U.S. Treasuries by the PBOC.   The paper didn’t even take into account the impact of QE on bond and note yields,

A paper published by the Federal Reserve Board (FRB) in 2012 estimated the impact on interest rates of the capital flow recycling into the U.S. bond market,


We find that a $100 billion increase in foreign official inflows into U.S. Treasury notes and bonds lowers the 5-year yield by roughly 40 to 60 basis points in the short run. However, our VAR analysis shows that in the long-run, when we allow foreign private investors to react to the effects induced by a shock to foreign official holdings, the estimated effect is roughly -20 basis points per $100 billion. Putting these results into context, between 1995 and 2010 China acquired roughly $1.1 trillion in U.S. Treasury notes and bonds. A literal interpretation of our long-run estimates suggests that if China had not accumulated any foreign exchange reserves during this period, and therefore not acquired these $1.1 trillion in Treasuries, all else equal, the 5-year Treasury yield would have been roughly 2 percentage points higher by 2010. This effect is large enough to have implications for the effectiveness of monetary policy. – FRB


Extrapolating the above analysis to the current stock of foreign official Treasury holdings of around $4 trillion leads to nonsensical results, such as the 5-year yield should be 800 basis points higher than it is today.   Obviously, the analysis should truncate the dependent variable – 5-year note yield — and ceteris paribus (other things being equal) does not hold in the real world.  –   GMM, March 18, 2017

Deflation is an urban myth, at least it has been in the U.S., as central banks have revealed their hand to do “whatever it takes” to fight it.  Let us not conflate relative price moves with generalized deflation.

The end game will thus be an episode of ugly monetary/debt induced inflation,  in our opinion.   Not yet, however.   Timing,  my friends.

Maybe it’s time to start looking at debt fundamentals again.

Debt Indicators_Draghi


Looney Fri, 06/30/2017 - 12:17 Permalink

  … This is tantamount to holding a beach ball underwater.  You know what happens when the ball is released. Dammit! Now I know why MY BALLS pop out of the water every time I try to snorkel.  ;-) Looney

All Risk No Reward Looney Fri, 06/30/2017 - 16:37 Permalink



Now the Debt-Money Monopolist "human power elite" are propagandizing reasons for raising rates TO PURPOSEFULLY POP THE BUBBLE, BANKRUPT SOCIETY, AND ASSET STRIP NESCIENT AND IGNORANT ORDINARY PEOPLE IN A VICIOUS MANNER.

This a Debt-Money Monopolist debt-money bubble blowing / debt-money bust Art of War operation against the ordinary people of the planet Earth.

As Lord Acton said, "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."
~Lord Acton

The propaganda covers up the purposeful and systematic villainy of it all.

Here's the absolute proof:

Money itself is created through the issuance of loans. Your textbooks lied to you - AND THE BANK OF ENGLAND ACKNOWLEDGES THIS LIE PUBLICLY...

1. Money is issued as debt (yes, specie isn't, but it is negligible)

Bank of England Admits that Loans Come FIRST … and Deposits FOLLOW

OK, with that out of the way, let's simplify the example in such a way that people aren't confused by the complexity.

Let's say I, the private internation banking cartel, loan you, society, $20 @ 5% interest.

In one year, you will owe me $21 due to double-entry bookkeeping adjustments that add $1 interest liability to your balance sheet and $1 interest asset to my balance sheet.

Let's summarize: In one year you will have access to $20, you will owe me $21, AND I WILL CONTROL THE $1 YOU NEED TO PAY ME BACK, OTHERWISE, PAYBACK IS IMPOSSIBLE.

BTW, the 5th grade level math works the same even if you add millions, billions, trillions, or quadrillions after the amount.

Behold, the Debt-Money Artificial Zero-Sum Monetary System Game where the debt-money instantiators collect interest on the world's money supply.

Who said there isn't money for nothing and chicks for free!

Can you reason out the absolute necessity for inflation or else the debtors go bust?

You will be bust in one year if I just hold onto the $1 interest asset. I will effectively steal your collateral and you will be to monetarilly illiterate to know - at least, that's the case for almost everyone I've ever met or conversed with (not all, but darn near!).

But, I don't want to steal $20 worth of stuff one time. I want to steal much more over time and, simultaneously, occult the methodology that does it.

So I lend another $20 to someone else. Now, technically, you can earn $1 and pay your debt to me, so you think the system is equitable - after all, you paid your debts, right?

But the guy who gave you a $1 only has $19, and still owes me $21. The $1 of inextinguishable debt turned into $2 of inextinguishable debt as the gross debt as the debt-money supply grew from $20 to $40. Errr, inflated.

This is why they inflated... to manage the money supply to only bankrupt the number of people they determine to bankrupt. They asset strip those they bankrupt, roo. It is literally a societal asset stripping conveyor mechanism.

But debt can't grow exponentially forever, so the debt-money bubble will bust and the asset stripping will accelerate well beyond the Great Depression level of ordinary person asset stripping.

BTW, a "bailout" is when the Debt-Money Monopolist Mega-Corporate Fronts lend $20, stick the proceeds in their corporate front "pockets," tell you they did it for you, and then send you a bill for $21 after the year is up and they gave you exactly ZERO DOLLARS.

There is a reason they train us to think "ignorance is bliss."

Is that enough data and logic for ya? Be sure to ask questions if you don't comprehend reality.


How To Be a Crook

Poverty - Debt Is Not a Choice

Renaissance 2.0 The Rise of [Debt-Money Monopolist] Financial Empire

Debunking Money

Oh, and Krugman knows the debt-money system is a fraud, and so do the MIT professors that groomed him.

MIT to Krugman, Krugman to Lietaer: "Never touch the money system!"

Krugman is a Goebbelsian as he covers the crimes of wolves with his fake sheep suit and lisping.

And don't think Steve Keen is any better. He was called to the carpet for not admitting the system is a fraud when it was explained EXACTLY HOW THAT FRAUD WORKED... and he tucked tail and ran away PRETENDING he was responsive...

The Principal And Interest On Debt Myth (technically correct, but practically reveals inherent fraud as exposed CLEARLY in the comments section)

Bottom line - Steve Keen won't "touch the money system" either. He learned well from his Debt-Money Monopolist Overlords.

30 sheckels of silver over THE TRUTH.

"The best way to control the opposition is to lead it and/or finance it."
~Yours truly, based upon Vladimir Lenin's quote

In reply to by Looney

Cordeezy (not verified) Fri, 06/30/2017 - 12:25 Permalink

Deflation is a myth? Lol oh my. The central banks hate deflation because it makes borrowing unprofitable and what does a bank do if it can't profit from lending?


rf80412 Cordeezy (not verified) Fri, 06/30/2017 - 12:54 Permalink

High interest rates make lending more profitable, not less.But when you've impoverished your consumer base to the point where they have to borrow in order to spend, you're stuck between a rock and a hard place.  You can't make it harder for them to borrow without choking off your own cash flows, but they're so indebted that - believe it or not - when they do have surplus money, they use it to pay down debts instead of spending it.The Fed is stuck trying to balance the competing interests of two different factions of the oligarchy: bankers who depend on rent income from money versus all the rest who depend on businesses and individuals spending.  Neither one of them wants to see more people have more income, since that would mean less profit, but the bankers doubly don't since people with more income borrow less.

In reply to by Cordeezy (not verified)

All Risk No Reward rf80412 Fri, 06/30/2017 - 17:10 Permalink

>>High interest rates make lending more profitable, not less.<<

Isn't it odd that the Big Banks were busted colluding TO DRIVE DOWN INTEREST RATES?

Not to me. The agenda was to drive debt issuance to increase over all debt saturation levels, not to make short term profits.

The real profits come when the zero-sum debt-money bubble pops and the mega-banks asset strip the soon to be "unwashed" (as in can't afford a shower) masses.

This is so diabolical... and the masses are basically blind to it.

In reply to by rf80412

All Risk No Reward Cordeezy (not verified) Fri, 06/30/2017 - 16:42 Permalink


Don't believe the propaganda... IOW, don't believe a thing they say or the lying Debt-Money Monopolist Media say.

They are liars and people who believe the liars are deceived.

"They Live" Bearded Man TV Transmission Scene

The movie They Live is a Debt-Money Monopolist financed movie where they put aliens in their stead. They mock ordinary people through the media they finance and, therefore, control.

In reply to by Cordeezy (not verified)

Mr Perspective Fri, 06/30/2017 - 12:35 Permalink

Every day multitudes of these type stories run. Every day they are wrong. For a statistical based industry you would think someone would understand the law of diminishing returns.Conversely this might just prove that there really is a sucker born every minute.

Smoker Fri, 06/30/2017 - 14:11 Permalink

If you push a ball underwater deep enough, the water pressure will eventually compress the ball to the point that the water displaced will weigh less than the ball itselt. At that point the ball then sinks like a rock. How far, how deep can the banks push?

In.Sip.ient Fri, 06/30/2017 - 15:28 Permalink

Remember Greece?That's where the PTBs did a little ( involuntary ) experimentin free market rates. The prime rate hit 30%...  and then went higher as itbecame obvious the Greek gov't couldn't cover that... To put that in perspective and assuming 30% prime( you should be so lucky this time around ... ) theUS Gov't would be looking at a $7Trillion per yearinterest payout ( assuming that $20Trillion debt ).  Given that, that is 150% of the current gov't budget...just how well do you think that would work out??? Wonder if the block chain isn't signalling that thereIS a problem... and gold just might be next tosend up a flare??? 

Youri Carma Sat, 07/01/2017 - 04:14 Permalink

It's all academic since if interest rates were to have followed it's natural cause they would have been higher from the beginning and we wouldn't be in the bubble situation we find ourselves in today. I don't think that today's economic situation warrants higher rates not to mention the debt trap.FED's hike rates will finish off an economy already on the brink of a recession. The bottom in retail is still not reached and now credit-card holder have to pay more. If oil supposedly is at the bottom, according to citi, higher oil prices won't help the economy either. So who's willing to predict more economic growth with higher oil and higher interest rates while the IMF has downgraded U.S. economic growth?Bottoms Up Line: It's all a head fake and eventually oil won't go much higher and so won't rates. In the end it's not about real inflation trough money velocity but exactly the opposite, it's all about deflation.