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Italian Debt Crashes Prompting ECB Intervention

Italian Debt Crashes Prompting ECB Intervention

Welcome to the brave new world of a helicopter money, aka the Magic Money Tree (MMT), where everything is crashing and nowhere more so than in Europe, which having made a dramatic U-turn on its historic fiscal stinginess, and where a flood of debt is now expected, bond yields across the continent are soaring even as European stocks crater, and nowhere more so than in Italy where the 10Y bond yield, which was trading below 1% as recently as one month ago, exploded as high as 2.99% this morning, before easing some of the rout following media reports that the ECB is intervening via the Bank of Italy.

Earlier in the session, Italy’s 10-year yield climbed as much as 64bps to 2.99%, pushing the BTP-bund spread up to 44bps wider to 323bps, the most since 2018 after a La Stampa report that Rome may extend the nationwide lockdown to beyond April 3.

Then shortly after 6am ET, Italian bonds trimmed declines after Radiocor reported the ECB was invervening in the domestic market through the Bank of Italy. “Moves are flexible in terms of timing and of markets targeted, and can continue as long as needed”, Radiocor news agency reported, citing central banking sources.

Even that, however, barely made a dent, with Italy’s 10-year yield still almost 40bps higher at 2.72% after earlier climbing to 2.99%.

There was no ECB intervention in other European bonds, although they certainly also need it, with Bunds suffering sharp losses as the 10Y Bund yield surged as high as -0.20%…

… although paring some losses following reports Germany was softening opposition to Italy’s proposal for joint EU bond issuance: German’s 30-year swap spread narrows 11bps to 0bps, the tightest since 2014, amid concerns that any fiscal loosening will lead to more bond issuance.

…click on the above link to read the rest of the article…

Truth

Truth

Every once in a while the truth shines through and we got a few doses of it today. Recently critics who suggested that the Fed’s QE policies artificially elevate asset prices were dismissed as QE conspiracists, but the truth is that central bank policies are directly responsible for the asset price levitations since early 2019 and well before then of course as well.

Loose money policies by central banks are goosing up asset prices. I’ve said it for a long time, others have as well despite constant pushback by apologists and deniers: No, no, asset prices are a reflection of a growing economy and earnings or so we were told.

All of this was revealed to be hogwash last year when asset prices soared to new record highs on flat to negative earnings growth and this farce continues to this day as the coronavirus is the new trigger for reductions in growth estimates yet asset prices continue to ascent to record highs following the Fed’s record liquidity injections:

But now the truth is officially out and can no longer be denied.

Here’s new ECB president Largard stating it plainly:


Kudos to @Lagarde for stating the obvious:

“European Central Bank President Christine Lagarde said her institution’s loose monetary policy is hitting savers and stoking asset prices”https://www.bloomberg.com/news/articles/2020-02-11/lagarde-says-ecb-low-rate-side-effects-puts-onus-on-governments?sref=q1j4E2z1 …

Lagarde Says ECB Policy Side Effects Put Onus on Governments

European Central Bank President Christine Lagarde said her institution’s loose monetary policy is hitting savers and stoking asset prices, as she called on governments to do more to boost the economy.bloomberg.com


But it’s not only Lagarde.

Even President Trump implicitly lays it all out as he’s apparently watching every tick on the $DJIA:

…click on the above link to read the rest of the article…

Fed Trying to Stop Global Economic Contagion – Martin Armstrong

Fed Trying to Stop Global Economic Contagion – Martin Armstrong

Legendary geopolitical and financial analyst Martin Armstrong says, “The Fed is trapped. If it stops (injecting money into the repo market by billions of dollars daily), interest rates will rise.”

Armstrong goes on to explain, “The Bank of Japan came out and said we’re going to buy government bonds unlimited. They, too, are trying to prevent interest rates from rising. . . . The ECB cannot afford rates to go up. . . . This is a global contagion that’s developing, and it’s pretty serious. The rise in interest rates has tremendous implications all the way around the globe. . . . Interest rates are rising because there is increased risk – period.”

The big risk, according to Armstrong, is global governments, including the U.S. Armstrong says, “You have to understand, at some point in time, capital begins to figure out who is the greatest risk, and the risk is government. At that stage in the game, when that point is reached, then you have shifts. The capital will move from public types of investments, such as government bonds and things of that nature, and then will move into the private sector. That’s equities, and that can be gold and real estate in different places. You try to go to tangible assets.”

So, what could go wrong with the Fed trapped in the repo market and cannot stop liquefying bad debt? Armstrong says, “What can go wrong is that they lose the game. They are doing this to try to prevent interest rates from rising. If they did not do this, the short term rate would be up dramatically.”

…click on the above link to read the rest of the article…

Central Bankers Are Quietly Freaking Out About How To Fight The Next Recession

Central Bankers Are Quietly Freaking Out About How To Fight The Next Recession 

Mark Carney warns about the limits of central bank policy.
Mark Carney, governor of the Bank of England (BOE), listens at the annual Mansion House dinner in … [+]2018 BLOOMBERG FINANCE LP

The world’s top central bank officials are rightly concerned that politicians in rich economies missed one key lesson of the last recession: Interest rate cuts can help to moderate a downturn, but aggressive fiscal policy is key to a healthy recovery. 

It was a pro-austerity stance both in the United States, and even more saliently in the euro zone, that arguably prolonged the period of high unemployment and low wage growth that plagued most of the decade-long recovery from the 2007-2009 U.S. Great Recession. 

Outgoing Bank of England Governor Mark Carney told the Financial Times this week that central banks are running low on fuel. “If there were to be a deeper downturn, [that requires] more stimulus than a conventional recession, then it’s not clear that monetary policy would have sufficient space,” he said.Today In: Money

“It’s generally true that there’s much less ammunition for all the major central banks than they previously had and I’m of the opinion that this situation will persist for some time.”  

That echoed the sentiment of Christine Lagarde, who recently took over the European Central Bank. She’s telling budget-shy European politicians (especially in Germany) to get to work

Now, a new paper from Fed board economist Michael Kiley points to similar alarm among U.S. central bankers about their ability to fight future slumps. 

Drawing up two basic assumptions of what a downturn might look like, Kiley finds that “a recession may result in near-zero interest rates at long maturities, bringing U.S. experience closer to that seen in Europe and Japan.”

This, says Kiley, “could imply limits on the ability of monetary policy to support a recovery.”

…click on the above link to read the rest of the article…

The Fed Detests Free Markets

The Fed Detests Free Markets

Paul Gauguin Tahitians at rest (unfinished) 1891

To be completely honest, I wrote -most of- the second part of this a while ago, and then I was thinking this first part should be part of the second, if you can still follow me. But it doesn’t really, it’s fine. I wanted to write something to address how little people know and acknowledge about how disastrous central bank policies have been for our societies and economies.

Because they don’t, and they have no clue, largely and simply because of the way central banks are presented both by themselves and by the financial press that covers them. Make that “covers”. Still, going forward, we will have no way to ignore the damage done. All the QE and ZIRP and NIRP will turn out to be so destructive for us all they will rival climate change or actual warfare. That’s what I wanted to talk about.

You see, free markets are a great idea in theory. Or you can call it “capitalism”, or combine the two and say “free market capitalism”. There’s very little wrong with it in theory. You have an enormous multitude of participants in an utterly complex web of transitions, too complex for the human mind to comprehend, and in the end that web figures out what values all sorts of things, and actions etc., have.

I don’t think capitalism in itself is a bad thing; what people don’t like is when it veers into neo-liberalism, when everything is for sale, when communities or their governments no longer own anything, when roads and hospitals and public services and everything that holds people together in a given setting is being sold off to the highest bidder. There are many things that have values other than monetary ones, and neo-liberalism denies that. Capitalism in itself, not so much.

…click on the above link to read the rest of the article…

Analysts Stunned After Lagarde Demands “Key Role” For The ECB In Climate Change

Analysts Stunned After Lagarde Demands “Key Role” For The ECB In Climate Change

Having failed miserably to “trickle down” stock market wealth for a decade as was their intention, something Ben Bernanke made clear in his Nov 4, 2010 WaPo op-ed, central banks have moved on to more noble causes.

Over the weekend Minneapolis Fed chair Neil Kashkari suggested it was time to allow central banks to directly decide how to redistribute wealth, stating unironically that “monetary policy can play the kind of redistributing role once thought to be the preserve of elected officials”, apparently failing to realize that the Fed is not made up of elected officials but unelected technocrats who serve the bidding of the Fed’s commercial bank owners.

Failing to decide how is poor and who is rich, central bankers are happy to settle with merely fixing the climate.

Overnight, Bank of Japan Governor Haruhiko Kuroda joined his European central banking peers by endorsing government plans to compile a fiscal spending package for disaster relief and measures to help the economy stave off heightening global risks. Kuroda said that natural disasters, such as the strong typhoon that struck Japan in October, may erode asset and collateral value, and the associated risk may pose a significant challenge for financial institutions, Kuroda said.

In short, it’s time for central banks to target global warming climate change:

“Climate-related risk differs from other risks in that its relatively long-term impact means that the effects will last longer than other financial risks, and the impact is far less predictable,” he said. “It is therefore necessary to thoroughly investigate and analyse the impact of climate-related risk.”

…click on the above link to read the rest of the article…

The Austrian School Warned, the ECB Didn’t Listen

The Austrian School Warned, the ECB Didn’t Listen

Looking at the current situation, one can easily perceive that our economic environment is not in the best condition. The whole of Europe is suffering from an economic stagnation, if not in some countries even a slowdown, that could very well turn into an economic recession sooner than later if appropriate measures are not taken to restructure many parts of our monetary system. The US could start experiencing the same effects soon, as we can observe from current trends on employment and productivity. Short-sighted economic policy, as that of President Trump asking the Fed for lower interest rates, or the ECB’s loose monetary policy (necessary in great part due to the lack of structural reforms by European governments), has severe effects -mostly that it only works in the short term, and leaves a tremendous economic hangover, composed of huge debt burdens and skyrocketing deficit levels.

The Austrian Business Cycle Theory (ABCT) can also shed some light on the situation in Europe by looking at how the European Central Bank has acted over the last decade, and how its actions, even if they had mild positive economic effects in the short term, are now slowing down productivity growth, impeding economic reforms, and sending countries into debt oceans – and, thus, finally, potentially accelerating the economic slowdown.

The ABCT is an economic theory primarily developed by the Austrian School of Economics from the 19th century onwards, mainly by Friedrich Hayek and Ludwig von Mises. Briefly explained, this theory is based on the idea that a tinkering with the interest rates, leading to excessive increases in the money supply of a country, by a central bank or through fractional reserve banking, inevitably creates a cycle of economic booms and busts.

 …click on the above link to read the rest of the article…

ECB Official: Can Use Portfolio To Combat Climate Change

ECB Official: Can Use Portfolio To Combat Climate Change  

Central banks have been making all kinds of ridiculous climate change statements in the last several quarters. Some monetary authorities have even said, they could also expand balance sheets to purchase climate-related financial investments. 

Sabine Lautenschläger, Member of the Executive Board and Governing Council of the European Central Bank (ECB), was quoted by Bloomberg on Wednesday in Düsseldorf, Germany, as saying the ECB is prepared to use its balance sheet to support the fight against climate change. 

Bloomberg quoted Lautenschläge as saying: 

• Sustainability criteria are already taken into account in our portfolios that are not held for monetary policy purposes: Lautenschlaeger

• The ECB needs to address all citizens, not just an expert audience – without ever becoming political

We’ve suggested in the past, that this is just a giant ruse to sneak through MMT and helicopter money under the virtue-signaling guise of fighting climate change. 

Central banks, who’ve spent a decade expanding balance sheets, have plowed trillions of dollars into financial assets across the world.

The flawed policy lifted financial asset prices but only benefited a few who held stock, bonds, real estate, etc… Everyone else, which is a majority of the global population are considered non-asset holders, didn’t participate in the decades-long orgy of cheap money, thus created a massive wealth gap that can no longer be ignored. 

As a result of the wealth gap, protectionism and nationalism are sweeping across the world. 

Political uncertainty across the world is at the highest levels ever. 

Millions of people are currently protesting from Asia, the Middle East, and South America, calling for change after a decade of flawed monetary policy by global central banks. 

 …click on the above link to read the rest of the article…

Weekly Commentary: Whatever It Takes to Never Give Up

Weekly Commentary: Whatever It Takes to Never Give Up

Any central bank head that passes through an eight-year term without once raising rates has some explaining to do. To leave monetary policy extremely loose for such an extended period comes with major consequences (can we at least agree on that?). So, what went wrong? How did policy measures not operate as expected? With the benefit of hindsight, what could have been done differently?

What will be Draghi’s legacy? How will history view his stewardship over eurozone monetary policy? The years sure pass by. I still ponder how history will judge Alan Greenspan and Ben Bernanke. At this point, with securities prices (equities and bonds) basically at all-time highs, contemporary monetary policy – and its major architects – are held in high regard. I don’t expect this to remain the case following the next crisis.

A reporter question from Draghi’s Thursday press conference: “A recent survey by the Bank of America reveals that impotence and ineffectiveness of central banks, including the ECB, are the second risk perceived by investors. My question is: do you think that these investor concerns are justified? In other words, is there a risk of financial bubbles?”

Mario Draghi: “…You asked whether the expansionary monetary policies of central banks is the second-largest risk. I can answer for the eurozone; in the eurozone, and it’s a question we ask ourselves every day, many times a day, and I’m saying this because we monitor market developments very closely. We see some segments of financial markets where valuations are overstretched. One case is real estate, for example, and especially prime commercial real estate. Now, the causes of these overstretched valuations often don’t lead directly to our monetary policies. For prime commercial real estate, it’s the action of international investors…

 …click on the above link to read the rest of the article…

Central Banks Begin to Panic

Central Banks Begin to Panic

Central Banks Begin to Panic - Craig Hemke (22/10/2019)

After rapidly reversing policy in 2019, does it seem to you that the global central banks have moved into full panic mode over the past several weeks? To that point, consider some of the headlines that have appeared over just the past few days.

Let’s start with Count Draghi and his insistence that the ECB restart their QE programs as soon as possible. Beginning next month, the ECB will begin regular purchases of up to €20B in bonds each month.

•  https://www.ft.com/content/de4a958a-eab3-11e9-a240…

Not to be outdone, the U.S. Fed went from “neutral” to “Large Scale Asset Purchase Program” in less than four weeks with the announcement on October 11 of a new $60B/month debt monetization program. The Fed also announced that their liquidity-providing repo facilities will remain open through January of 2020, at a minimum.

•  https://www.cnn.com/2019/10/11/investing/fed-qe-po…

So what is prompting this quick reversal in monetary policy? Is it simply the worsening global economy, or is something darker lurking in the shadows? As I type, it’s Tuesday morning, October 22, and here is a collection of headlines from just the past week.

First, here’s the Secretary General of the UN—a largely symbolic, international diplomatic post—urging global central bankers, the IMF, and World Bank to “do everything possible” in order to stave off a potential crisis: https://www.zerohedge.com/economics/central-banks-…

Next, the consulting firm McKinsey & Co. is out with a new report that concludes that more than half of the world’s banks may not be strong enough to maintain economic viability in the next crisis(a crisis which is inevitable, I might add ). Remember, the central banks are owned by and serve their own member banks. If the majority of the world’s banks are in financial trouble, then it’s understandable that the majority of the world’s central banks would be quite nervous:https://www.bloomberg.com/news/articles/2019-10-21…

 …click on the above link to read the rest of the article…

The Fed is Lying to Us

The Fed is Lying to Us

“When it becomes serious, you have to lie”

The recent statements from the Federal Reserve and the other major world central banks (the ECB, BoJ, BoE and PBoC) are alarming because their actions are completely out of alignment with what they’re telling us.

Their words seek to soothe us that “everything’s fine” and the global economy is doing quite well. But their behavior reflects a desperate anxiety.

Put more frankly; we’re being lied to.

Case in point: On October 4, Federal Reserve Chairman Jerome Powell publicly claimed the US economy is “in a good place”. Yet somehow, despite the US banking system already having approximately $1.5 trillion in reserves, the Fed is suddenly pumping in an additional $60 billion per month to keep things propped up.

Do drastic, urgent measures like this reflect an economy that’s “in a good place”?

The Fed’s Rescue Was Never Real

Remember, after a full decade of providing “emergency stimulus measures” the US Federal Reserve stopped its quantitative easing program (aka, printing money) a few years back.

Mission Accomplished, it declared. We’ve saved the system.

But that cessation was meaningless. Because the European Central Bank (ECB) stepped right in to take over the Fed’s stimulus baton and started aggressively growing its own balance sheet — keeping the global pool of new money growing.

Let’s look at the data. First, we see here how the Fed indeed stopped growing its balance sheet in 2014:

And we can note other important insights in this chart.

For starters, you can clearly see how in 2008, the Fed printed up more money in just a few weeks than it had in the nearly 100 years of operations prior.

 …click on the above link to read the rest of the article…

For The First Time Ever, Greece Issues Negative Yielding Debt

For The First Time Ever, Greece Issues Negative Yielding Debt

As armies of fixed income strategists battle over whether US Treasuries are facing higher or lower yields, Greece has no such qualms and in a historic shift today, the former bond market pariah and Eurozone’s most indebted nation, joined the exclusive club of negative-yielding European nations when bond investors lined up to pay the nation that was at the heart of Europe’s sovereign debt crisis.

A sale of €487.5 million of 13-week bills on Wednesday drew Greece’s first-ever negative yield of minus 0.02% as investors now pay Athens for the privilege of lending it cash, as Bloomberg first reported. Greece joins the likes of Ireland, Italy and Spain – not to mention virtually all core Eurozone nations – which benefit from the ECB’s insane monetary policy and deepening fears of a global recession.

It’s been an unprecedented turnaround for twice bankrupt Eurozone member, whose bondholders suffered massive losses back in March 2012 when the country was forced to accept the biggest bond restructuring in history, bringing the Eurozone to the verge of collapse.

Just a few years and several trillions in bond purchases by the ECB later, the region is grappling with an altogether different problem – the spread of negative yields, which reduces borrowing costs for governments in a form of soft default, one which is crushing savers, pension funds and insurers, and which has prompted some of the most respected names in finance to shriek in terror as the cost of money in even Europe’s most insolvent nations is now negative.

Jon Day, a fixed-income portfolio manager at Newton Investment Management, said the move was “another symptom” of the “global grab for yield, especially in euro-denominated bonds,” pointing out that short-dated Greek bonds were previously one of the few government markets where a positive return was on offer. 

…click on the above link to read the rest of the article…

ECB “Whistleblowers” Emerge: Former Central Bankers Cry Out Against Draghi’s Monetary Insanity

ECB “Whistleblowers” Emerge: Former Central Bankers Cry Out Against Draghi’s Monetary Insanity

It’s not just disgruntled CIA officials that have decided the best way to stage a coup is by way of “whistleblowing” – former central bankers are using a similar approach when it comes to the root cause of all of society’s ills: failed central bank policies, and nowhere more so than at the European Central Bank.

On Friday, a group of former senior European central bankers published a memo attacking the unhinged monetary policy of the European Central Bank, which they claim is “based on the wrong diagnosis” and risks ending its independence. Their criticism is in response to a package of massive easing measures announced by the ECB last month, including “open-ended QE” that triggered unprecedented opposition within the top echelons of the central bank, and set up a “resistance” faction within the ECB itself spearheaded by Germany, France and the Netherlands, as it has now emerged that all along Mario Draghi was the central banker of Europe’s insolvent periphery, even as his NIRP policies crushed Europe’s legacy banking system.

The rare public attack on the ECB – in the eyes of the FT – underlined how Christine Lagarde could have a fight on her hands after she takes over from Mario Draghi as president of the bank at the end of this month, when – not if – she decides to loosen monetary policy even more in the face of the eurozone’s mounting economic slowdown.

Commenting on the unprecedented mutiny against the former Goldmanite Mario Draghi, whom the extremely confused socialist elements – desperate for acceptance by some, any echo chamber – have called “legendary” even though it is his policies that have crushed Europe’s working classes, One River CIO Eric Peters said…

 …click on the above link to read the rest of the article…

What the Hell is the ECB Doing?

What the Hell is the ECB Doing?

Danielle DiMartino poses an interesting question regarding the ECB. I have a set of answers.

What is the ECB Doing?

I started thinking about that question weeks ago.

I have a set of answers and even started writing this post before DiMartino brought it to the forefront.

There are only two answers. One of them is very unsettling.

  1. Ignorance
  2. On Purpose

Occam’s Razor

Occam’s razor is a principle from philosophy. Suppose there exists two explanations for an occurrence. In this case the one that requires the least amount of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation.

Occam’s Razor typically eliminates most conspiracy theories. It’s not that conspiracies don’t happen, but that simpler solutions are far more likely.

My corollary to the theory is very easy to understand: If stupidity is one of the possible answers, it is the most likely answer.

I am a normally a big fan of Occam’s Razor.

But this is so bizarre that I have my doubts.

Importantly, this may not be a conspiracy at all. Mario Draghi can easily be acting alone.

My Lead Question

How stupid can things get before one starts believing something else is in play?

I had already been thinking about that question when not only did ECB president Mario Draghi further push interest rates into negative territory but he also said it was a good idea for the ECB to think about MMT.

Shocking ECB Dissent

Dissent at the Fed happens all the time. It is rare at the ECB. The ECB builds a consensus and it is typically unanimous.

 …click on the above link to read the rest of the article…

The Disaster of Negative Interest Rates

The Disaster of Negative Interest Rates

The dollar strengthened against the euro in August, merely in anticipation of the European Central Bank slashing its key interest rate further into negative territory. Investors were fleeing into the dollar, prompting President Trump to tweet on Aug. 30:

The Euro is dropping against the Dollar “like crazy,” giving them a big export and manufacturing advantage… And the Fed does NOTHING!

When the ECB cut its key rate as anticipated, from a negative 0.4% to a negative 0.5%, the president tweeted on Sept. 11:

The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term.

And on Sept. 12 he tweeted:

European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports…. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!

However, negative interest rates have not been shown to stimulate the economies that have tried them, and they would wreak havoc on the U.S. economy, for reasons unique to the U.S. dollar. The ECB has not gone to negative interest rates to gain an export advantage. It is to keep the European Union from falling apart, something that could happen if the United Kingdom does indeed pull out and Italy follows suit, as it has threatened to do. If what Trump wants is cheap borrowing rates for the U.S. federal government, there is a safer and easier way to get them.

The Real Reason the ECB Has Gone to Negative Interest Rates

 …click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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