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What Will Be the Unintended Consequences of Printing Trillions of Dollars to Backstop the Entire System?
What Will Be the Unintended Consequences of Printing Trillions of Dollars to Backstop the Entire System?
Stocks are up somewhat this morning.
This marks the second Monday stocks will open in the green (last Monday was a green open as well) following two horrifically bad weekend sessions that saw stocks open limit down or close to limit down (March 2nd and 9th).
In the simplest of terms, the panic in the markets appears to be abating. It is clear stocks have broken the downtrend from the panic (blue lines). What is not clear is whether this rally will continue or not.
Stocks stalled out under resistance (red line) last week. A break above that line would open the door to a run to 3,000.
At the end of the day, stocks are actually a minor player in this mess. The BIG story is what happens with the bond markets.
Going into last week, it was clear the financial system was facing a debt crisis. Across the board everything from corporate bonds to municipal bonds were breaking down in a catastrophic fashion.
The Fed managed to stop this massacre by announcing it would backstop everything.
The question now is whether that will be enough. Bonds have staged a major bounce in the last five days, but what happens if they turn down again?
Will the Fed’s announcement that it intends to buy corporate bonds be enough to stop the $10 trillion corporate bond bubble from imploding?
What about the $16-$19 trillion commercial real estate market? Will the shutdown, which has closed so many restaurants and retailers, result in a crisis in this market as businesses begin skipping monthly payments or breaking contracts outright?
And what about the $23 trillion U.S. treasury bubble? Will the $2 trillion in stimulus, which both the President and the Democrats have suggested will be the first of several, be what finally pushes the U.S.’s debt loads into a crisis?
…click on the above link to read the rest of the article…
When This Debt Bubble Bursts, Central Banks Will Turn to Money Printing… Again
When This Debt Bubble Bursts, Central Banks Will Turn to Money Printing… Again
Let’s face the facts.
The only reason the financial system has held together so well since 2008 is because Central Banks have created a bubble in bonds via massive QE programs and seven years of ZIRP/NIRP.
As a result of this, the entire world has gone on a debt binge issuing debt by the trillions of dollars. Today, if you looked at the world economy, you’d find it sporting a Debt to GDP ratio of over 327%.
Well guess what? The REAL situation is even worse than this. The Bank of International Settlements (the Central Banks’ Central Bank) just published a report revealing that globally the financial system has $13 trillion MORE debt hidden via junk derivatives contracts.
Global debt may be under-reported by around $13 trillion because traditional accounting practices exclude foreign exchange derivatives used to hedge international trade and foreign currency bonds, the BIS said on Sunday.
Source: Yahoo! Finance.
As has been the case for every single crisis since the mid’90s, the problem is derivatives.
Consider that as early as 1998, soon to be chairperson of the Commodity Futures Trading Commission (CFTC), Brooksley Born, approached Alan Greenspan, Bob Rubin, and Larry Summers (the three heads of economic policy) about derivatives.
Born said she thought derivatives should be reined in and regulated because they were getting too out of control. The response from Greenspan and company was that if she pushed for regulation that the market would “implode.”
Fast-forward to 2007, and once again unregulated derivatives trigger a massive crisis, this time regarding the Housing Bubble
And today, we find out that once again, derivatives are at the root of the current bubble (debt). And once again, the Central Banks will be cranking up the printing presses to paper over this mess when the stuff hits the fan.
…click on the above link to read the rest of the article…
Have Central Banks Finally Unleashed Inflation?
Have Central Banks Finally Unleashed Inflation?
On Monday Spain reported a year over year 7.5% jump in its PPI reading (a measure of inflation). Take a look at that chart.
Spain is just the latest major economy to join the inflationary tide.
German also saw a recent spike in PPI.
In the US, inflation is now well above the Fed’s target 2%, having ripped over 3% higher in the last six months alone.
This is much bigger than Trump or any single factor. After eight years of low interest rates and Trillions of Dollars in QE spent, global Central banks have finally unleashed inflation…
The big problem with this is that inflation is like ketchup in a bottle. It always takes longer to get achieve than you’d predict… but once it hits, you usually get more than you hoped for.
This is the sort of environment in which a major market event could happen. Over $100 trillion in bonds are at risk of entering a bear market if inflation REALLY takes hold.
And while the odds are low that we get an actual Crash… this environment is more conducive to Black Swan events than any other in the last seven years.
