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Game Over

Game Over

Game over. Occam’s Razor: The simplest explanation is often the best one. Central banks will never extract themselves. Whether they ultimately end QE is besides the point. They won’t reduce their balance sheets. They can’t. Powell’s “performance” yesterday was not an accident. He’s been running on the same theme of offering absolutely zero specifics. Why? 3 reasons: 1. There are none as there is no plan. 2. To maintain flexibility and not to be held accountable or anything 3. To not upset markets.

We saw this recently when he actually got challenged on MBS and QE. He couldn’t and wouldn’t offer a rationale as to what is actually economically accomplished by it:

 

Yesterday he clarified his “transitory” definition :

 

More importantly:

 

He doesn’t know. And why would he? There is zero precedent for this much combined liquidity from the fiscal and monetary side along with a rapid economic reopening with consumers’ pockets stuffed with free money from the government.

To inflate the stocks market and the housing market was the goal. The Bernanke script:

 

Now the bubble has gotten so large they can’t risk anything popping it:

Why? Because popping the largest asset bubble ever would result in a catastrophic reset, not only a recession, but a depression.

The reality is debt levels have so exploded in the past 13 years any pre GFC type interest rates (which were historically low back then) would collapse the entire system. They know it. I know it, you know it. The entire system is predicated on debt expansion and cheap money to sustain it. That’s it.

This is the only choice:

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

Quantitative easing: how the world got hooked on magicked-up money

Going cold turkey would finish off a dysfunctional global financial system that’s now hopelessly addicted to emergency infusions. The only solution is surgery on the system itself

The world economy is a mess. The system, notionally governed by the invisible hand of the market, is no longer governed in any meaningful way: private excess puffs up bubbles that government indulgence ensures can never burst. We seem condemned to volatile commodity prices, wild capital flows, worsening imbalances in trade, taxation and income, and—before long—the next sovereign debt crisis. And then there’s inequality. During lockdown, the total wealth of billionaires rose by $5 trillion to $13 trillion in 12 months, the most dramatic surge ever registered on the annual Forbes billionaire list.

Where do such riches come from? Compared to before the pandemic, there’s less real economic activity: we are collectively poorer. And yet within a year of the great panic of March 2020, many asset prices were surging. Wall Street and the City of London are again awash with liquidity—and in a speculative mood. One vogue is for something called SPACs, or “special purpose acquisition companies.” That sounds so vague as to bring to mind the South Sea Bubble companies of 1720, whose pitch is remembered as “carrying on an undertaking of great advantage but nobody to know what it is.”

How is this mismatch between financial markets and underlying reality possible? Because just like in the aftermath of the Great Recession, the civil servants in our central banks spotted the dreadful potential of unchecked panic, and rode to the rescue of private speculators by flushing the system with made-up money through a process we’ve come to know as quantitative easing.

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

Bank of Canada Tapers Weekly QE To C$2BN, Sees Lift Off In “Sometime In Second Half Of 2022”

Bank of Canada Tapers Weekly QE To C$2BN, Sees Lift Off In “Sometime In Second Half Of 2022”

As expected, the Bank of Canada took another step to normalize the emergency levels of stimulus, when it announced that it is tapering its bond purchases from C$3BN weekly to C$2BN, in what it hopes to telegraph is a sign of optimism about the speed of the recovery. Naturally, it kept the rate unchanged at 0.25%.

“The Bank is maintaining its extraordinary forward guidance on the path for the overnight rate. This is reinforced and supplemented by the Bank’s quantitative easing (QE) program, which is being adjusted to a target pace of $2 billion per week. This adjustment reflects continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook,” the bank said in a statement, which while echoing the Fed in claiming that while “the factors pushing up inflation are transitory” their “persistence and magnitude are uncertain and will be monitored closely.”

Looking ahead, the BOC is maintaining guidance that economic slack will be absorbed in the second half of 2022, suggesting a rate hike won’t occur until then. There remains significant surplus capacity in the economy. And while vaccine progress and easing lockdowns are encouraging, the spread of variants remains a risk.

“The Governing Council judges that the Canadian economy still has considerable excess capacity, and that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achievedIn the Bank’s July projection, this happens sometime in the second half of 2022”

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

Fed Drains $485 Billion in Liquidity from Market via Reverse Repos, Undoing 4 Months of QE, Even as QE Continues, Total Assets Near $8 Trillion

Fed Drains $485 Billion in Liquidity from Market via Reverse Repos, Undoing 4 Months of QE, Even as QE Continues, Total Assets Near $8 Trillion

It’s a crazy situation the Fed backed into as tsunami of liquidity goes haywire, banking system strains under $4 trillion in reserves, and General Treasury Account gets drawn down.

This morning, the Fed sold a record $485 billion in Treasury securities via overnight “reverse repos” to 50 counterparties, beating the prior record set on December 31, 2015. These overnight reverse repos will mature and unwind tomorrow morning. Today, yesterday’s $450 billion in overnight reverse repos matured and unwound, and were more than replaced with this new batch of $485 billion in overnight reverse repos.

Reverse repos are liabilities on the Fed’s balance sheet. They’re the opposite of repos, which are assets. With these reverse repos, the Fed is selling Treasury securities to counterparties and is taking their cash, thereby massively draining liquidity from the market – the opposite effect of QE.

In past years of large reserves following QE, banks shed reserves via reverse repos, reducing reserves on the balance sheet and increasing their Treasury holdings, to dress up their balance sheet at the end of the quarter, and particularly at the end of the year. Reverse repos declined after the Fed started reducing its assets during Quantitative Tightening in 2018 and 2019. But the current record spike is taking place in the middle of the quarter, a sign that the enormous amount of liquidity is going haywire:

This is a crazy situation that the Fed backed into.

Even as liquidity is going haywire, and as the Fed trying to deal with it via reverse repos, the Fed is still buying about $120 billion per month in Treasury securities and mortgage-backed securities, thereby adding liquidity.

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

Fed Drains $351 Billion in Liquidity from Market via Reverse Repos, as Banking System Creaks under Mountain of Reserves

Fed Drains $351 Billion in Liquidity from Market via Reverse Repos, as Banking System Creaks under Mountain of Reserves

This is the first time I’ve seen Wall Street banks clamor for the Fed to back off QE. The Fed is struggling to keep the liquidity it created from going haywire.

In the fall of 2019, when the repo market blew out, the Fed stepped in and bought Treasury securities and MBS and handed out cash via repurchase agreements. When these repos matured, the Fed got its money back, and the counterparties got their securities back. The Fed also did this during the market rout in March 2020. But by July 2020, the last repos matured and were unwound.

Now the Fed is doing the opposite, with “reverse repos.” Repos are assets on the Fed’s balance sheet. Reverse repos are liabilities. With these reverse repos, the Fed is now massively selling Treasury securities to counterparties and taking their cash, thereby draining liquidity from the market – the opposite effect of QE.

This morning, the Fed sold $351 billion in Treasury securities via overnight reverse repos to 48 counter parties, thereby blowing past the brief spike at the end of March 2020, and more than replacing yesterday’s $294 billion in Treasury securities that it has sold via reverse repos to 43 counterparties and that matured and unwound this morning.

These reverse repos are a sign that the banking system is struggling to deal with the liquidity that the Fed has been injecting via its QE. And that’s in part why there is now some clamoring on Wall Street for the Fed to taper its QE purchases because the banking system is now drowning in liquidity that banks have as reserves on their balance sheet. By buying Treasuries in the repo market, the banks lower their reserves and increase their Treasury holdings.

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

The Most Splendid Housing Bubbles in Canada: Even the Bank of Canada Gets Nervous and Tapers

The Most Splendid Housing Bubbles in Canada: Even the Bank of Canada Gets Nervous and Tapers

House prices in the largest markets have gone nuts amid “extrapolative expectations and speculative behavior,” as the Bank of Canada put it.

The first thing to know about the housing bubble in Canada is what the Bank of Canada has been doing, after its furious bout of QE: In October last year, it tapered purchases of Government of Canada bonds by one notch and also ended buying mortgage-backed securities. In March, it started unwinding its liquidity facilities, citing “moral hazard” as reason. In April, it tapered by another notch its purchases of Government of Canada bonds, citing “signs of extrapolative expectations and speculative behavior” in the housing market.

The assets on its balance sheet have now dropped from C$575 billion in March, to C$478 billion as of May 12:

House prices have truly gone nuts.

In the Greater Toronto Area (GTA), house prices spiked by 3.0% in April from March, and by 12.3% year-over-year, and have nearly tripled over the past 15 years, according to the Teranet-National Bank House Price Index today.

The index tracks prices of single-family houses through “sales pairs,” similar to the Case-Shiller Home Price Index in the US, comparing the price of a house that sold in the current month to the price of the same house when it sold previously, often years earlier. By tracking how many more Canadian dollars it takes to buy the same house over time, the index is a measure of house price inflation.

In Greater Vancouver, house prices jumped by 2.0% in April from March and are up 9.4% year-over-year. The Bank of Canada’s pandemic magic has completely turned around the housing bust that had started in mid-2018. The index has more than tripled in 15 years:

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

The Secret

The Secret

The secret is out. It can no longer be denied and it’s up to each and everyone of us to help bring the secret to the forefront of public awareness.

For the mainstream financial media won’t do it, indeed they allow the guardians of the secret to continue to deny its existence.

For years those of us who have been critical as to the negative consequences of easy money policies, QE in particular, were dismissed and mocked as “QE conspiracists” and even as “swashbuckling pirates of free market capitalism” by central bankers directly including yours truly:

It’s easier to mock and ignore with a Tweet and then go into hiding versus engaging in substantive debate.

But the lid just got blown off the false narratives that have been propagated by central bankers from Powell on down with his now infamous claim that “Fed policies absolutely don’t add to inequality“.

Of course QE adds to inequality. Even the Bank of Canada just sheepishly admitted it:

But the real hammer just dropped by one of the most successful investors ever, billionaire Stan Druckenmiller. Not only does QE add to inequality it is the main driver:

“I don’t think there has been a greater engine of inequality than the Federal Reserve Bank of the United States”.

Watch this clip for it lays bare not only the brutal reality of how the Fed has reshaped the country for the benefit of the rich, but also who will pay for the consequences:

The data Druckenmiller is referring to is as obvious as the light of day:

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

The Mainstream Is Wrong About Rising Bond Yields and Gold

The Mainstream Is Wrong About Rising Bond Yields and Gold

Prices are going up. The Federal Reserve is printing money at an unprecedented rate. The US government continues to borrow and spend at a torrid pace. As Peter Schiff put it in a recent podcast, we’re adrift in a sea of inflation. Gold is supposed to be an inflation hedge. So, why isn’t the price of gold climbing right now?

In a nutshell, rising bond yields have created significant headwinds for gold. And the mainstream is reading rising yields and their relationship to gold all wrong.

It really comes down to expectations. Most people in the mainstream view rising yields as an inflation signal, and they expect the Federal Reserve to respond to this inflationary pressure in a conventional way. They expect the Fed to tighten monetary policy, raise interest rates and shrink its balance sheet.

As Peter Schiff has explained on numerous occasions, this won’t happen. The Fed won’t fight inflation because it can’t. It will ultimately surrender to inflation.

Right now, the markets sense that inflation is going to be moving higher. And maybe even higher than what the Fed is acknowledging. But I think the markets still believe the Fed — that the Fed will be able to contain the inflation problem before it really runs out of control. So, it’s the expectation that the Fed’s going to fight inflation by raising rates — that’s what’s pressuring gold. But the markets are wrong. The Fed is not even going to attempt to fight inflation. It’s going to surrender. Inflation is going to win without a fight…

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

, schiffgold, inflation, money printing, credit expansion, central banks, qe, quantitative easing, peter schiff, fed, us federal reserve, gold,

Bank of Canada Now Owns 40% of Government of Canada Bonds. Fed a Saint in Comparison. Taper on the Table

Bank of Canada Now Owns 40% of Government of Canada Bonds. Fed a Saint in Comparison. Taper on the Table

“Makes you wonder if there’s a potential mid-QE-life crisis taking shape in Ottawa”: strategists at the National Bank of Canada in a note that would be hilarious if it weren’t so serious.

The Economics and Strategy shop at the National Bank of Canada, the country’s sixth largest bank, sent a missive to clients today that would be hilarious if it weren’t pointing at such a serious and massive issue: It celebrated “40,” referencing a 40th birthday, but instead of a birthday, it referred to the Bank of Canada’s ballooning holdings of Government of Canada (GoC) bonds, which will hit a stunning 40% of all GoC bonds outstanding this Friday.

By comparison, the Fed holds 17.6% of all Treasury securities outstanding: It holds $4.94 trillion in Treasury securities, of $28.1 Trillion outstanding. We – that’s the universal “we,” meaning “a few of us” – complain about the Fed’s crazy buying of Treasury securities and all the distortion and craziness this causes. But compared to the Bank of Canada, the Fed looks like a saint.

The Bank of Canada announced a couple of weeks ago, citing “moral hazard” associated with its central bank nuttiness, that it would unwind its crisis liquidity facilities, and that this would reduce its total assets by about C$100 billion, or by about 17%, from C$575 billion at the time, to C$475 billion by the end of April. In October, it had started a mini-tapering of its purchases of GoC bonds and is jabbering about tapering its GoC bond purchases further. And its total assets have started to drop over the past two weeks:

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

wolf richter, wolfstreet, bank of canada, liquidity, qe, quantitative easing

QE During the “Everything Mania”: Fed’s Assets at $7.7 Trillion, up $3.5 Trillion in 13 months

QE During the “Everything Mania”: Fed’s Assets at $7.7 Trillion, up $3.5 Trillion in 13 months

But long-term Treasury yields have surged, to the great consternation of our Wall Street Crybabies.

The Fed has shut down or put on ice nearly the entire alphabet soup of bailout programs designed to prop up the markets during their tantrum a year ago, including the Special Purpose Vehicles (SPVs) that bought corporate bonds, corporate bond ETFs, commercial mortgage-backed securities, asset-backed securities, municipal bonds, etc. Its repos faded into nothing last summer. And foreign central bank dollar swaps have nearly zeroed out.

What the Fed is still buying are large amounts of Treasury securities and residential MBS, though no one can figure out why the Fed is still buying them, given the crazy Everything Mania in the markets.

But for the week, total assets on the Fed’s weekly balance sheet through Wednesday, March 31, fell by $31 billion from the record level in the prior week, to $7.69 trillion. Over the past 13 months of this miracle money-printing show, the Fed has added $3.5 trillion in assets to its balance sheet:

One of the purposes of QE is to force down long-term interest rates and long-term mortgage rates. But long-term Treasury yields started rising last summer. The 10-year Treasury has more than tripled since then and closed today at 1.72%. Mortgage rates started rising in early January. Bond prices fall as yields rise, and the crybabies on Wall Street want the Fed to do something about those rising long-term yields and the bloodbath they have created in the prices of long-term Treasury securities and high-grade corporate bonds.

But instead, the Fed has said in monotonous uniformity that rising long-term yields despite $120 billion of QE a month are a welcome sign of rising inflation expectations and a growing economy:

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

wolf richter, wolfstreet, qe, quantitative easing, money printing, credit expansion, fed, us federal reserve, central bank, interest rates, wall street

Bank of Canada Announces Balance Sheet Reduction, Suddenly Worried about “Moral Hazard”

Bank of Canada Announces Balance Sheet Reduction, Suddenly Worried about “Moral Hazard”

“Once crisis tools have served their purpose, central banks should scale them back.”

The Bank of Canada will unwind its crisis liquidity facilities, will further reduce its purchases of Government of Canada bonds, which it already started tapering in October, will let short-term assets “roll off” the balance sheet when they mature, and will as a result reduce its total assets from C$575 billion now to $C475 billion by the end of April, announced Bank of Canada Deputy Governor Toni Gravelle in a speech today.

Most of the speech was focused on the reasons for the QE and liquidity programs that the Bank of Canada unleashed starting in mid-March last year, in a two-fold role: In its role as “lender of last resort,” to deal with the “extreme stress” in the markets, as liquidity dried up and markets weren’t functioning or had “seized completely” as everyone was trying to sell everything in a mad “dash for cash.” And in its role as provider of stimulus as the economy that was spiraling down.

But these actions ballooned the balance sheet fourfold, to C$575 billion, and it created the possibility of “moral hazard.”

“Moral hazard emerges whenever market participants or other economic actors feel that they can engage in risky behavior without bearing consequences if things go wrong,” Gravelle said, a year after moral hazard became forever the guiding principle of the markets.

But moral hazard can be limited “by ensuring that such actions have a predetermined expiry date or are unwound when they’re no longer needed,” he said.

“Once crisis tools have served their purpose, central banks should scale them back to show that they are emergency measures and don’t reflect business as usual,” he said.

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

wolf richter, central banks, bank of canada, wolfstreet, canada, housing bubble, mortgage bubble, interest rates, qe, quantitative easing

Update on Fed’s QE: The Crybabies on Wall Street, which Clamored for More, Are Disappointed

Update on Fed’s QE: The Crybabies on Wall Street, which Clamored for More, Are Disappointed

And five SPVs expired, including the one that bought corporate bonds and bond ETFs.

The Fed has now put on ice five of its SPVs (Special Purpose Vehicles) which had been designed back in March to bail out the bond market. It unwound its repo positions last June. Its foreign central bank liquidity swaps are now down to near-nothing except with the Swiss National Bank, which seems to have a need for dollars. The Fed has been adding to its pile of Treasury securities at the rate spelled out in its FOMC statements, thereby monetizing part of the US government debt. And it has been adding to its pile of Mortgage Backed Securities (MBS).

The result is that total assets on its weekly balance sheet through Wednesday, at $7.4 trillion, are roughly flat with the level in mid-December and are up by $200 billion from early June, with an average growth rate over the six-plus months of $30 billion a month.

And the crybabies on Wall Street that have for months been clamoring for more QE have been disappointed. It’s still a huge amount of QE, but for the crybabies on Wall Street, it’s never enough:

But the long-term chart shows just how hog-wild the Fed had gone, furiously trying to bail out and enrich the asset holders, which are concentrated at the very top, thereby creating in the shortest amount of time the largest wealth disparity the US has ever seen. From crisis to crisis, from bailout to bailout, and even when there is no crisis:

Repurchase Agreements (Repos) remained at near-zero:

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

Ray Dalio: “We Are On The Brink Of A Terrible Civil War”

Ray Dalio: “We Are On The Brink Of A Terrible Civil War”

It was over a decade ago that we first warned the Fed’s unconstrained monetary lunacy will eventually result in civil war, a prediction for which Time magazine, which back then was still somewhat relevant, mocked us. This is what Time’s Stephen Gendel said in October 2010:

What is the most likely cause of civil unrest today? Immigration. Gay marriage. Abortion. The results of Election Day. The mosque at Ground Zero. Nope.

Try the Federal Reserve. Nov. 3 is when the Federal Reserve’s next policy committee meeting ends, and if you thought this was just another boring money meeting you would be wrong. It could be the most important meeting in the Fed’s history, maybe. The U.S. central bank is expected to announce its next move to boost the faltering economic recovery. To say there has been considerable debate and anxiety among Fed watchers about what the central bank should do would be an understatement. Chairman Ben Bernanke has indicated in recent speeches that the central bank plans to try to drive down already low interest rates by buying up long-term bonds. A number of people both inside the Fed and out believe this is the wrong move. But one website seems to indicate that Ben’s plan might actually lead to armed conflict. Last week, a post on the blog Zero Hedge said … that the Fed’s plan is not only moronic, but “positions US society one step closer to civil war if not worse.”

* * * * *

The problem is that the Fed directly sets only short-term interest rates. And they are already about as close to zero as you can go. That’s why Bernanke has been talking about something called “quantitative easing.” …

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

 

Building A false Economy On Hope And Printing Money

Building A false Economy On Hope And Printing Money

False Economy’s End In Decay And Failure

This article is in response to a piece about how it looks like massive stimulus is finally upon us and the only question is how big it will be. It would be wise to remember this is all an experiment and could result in a false economy so rooted in unsustainable stimulus that it cannot survive yet alone flourish. A modern example of this is the implosion of the USSR in 1991. The impact of such a collapse is not limited to the economy but extends deep into the lives of a county’s citizens.When we look back over the wreckage brought upon certain sectors of our economy during the last year and the policies governments are now embracing we should feel a sense of dread and apprehension for the long-term health of our culture. Government overreach is in full swing and ripping away the strength and social power from all other institutions of social life. Not only are we seeing our civil liberties under attack, but the lock-downs have also been an economic disaster that has devastated most small and medium-sized businesses.

The December job numbers show America lost 140,000 jobs last month. The big issue here is that as small businesses close their doors forever, many of these jobs won’t be coming back. We need to couple this with the idea the minimum wage is likely to soon increase driving the forces of automation into overdrive which will further reduce job opportunities in the future. This translates into far higher government deficits going forward as many more Americans exit the workforce. It is difficult to argue that the government stepping into the role of our primary supporter does not reduce our incentive to work. This is especially true considering the level of support many Americans seek.

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

Bloomberg Analysts: “Gold the Asset to Beat in 2021”

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold to spearhead precious metals’ outperformance in 2021, why 2020 was a very good year for national mints, and birdwatcher unearths biggest-ever hoard of Celtic gold in Britain.

Bloomberg analysts: A $2,000 price tag will make gold the asset to beat in 2021

Among traditional assets, it would be difficult to beat gold for the title of top performer in 2020. Having hit a new all-time high of $2,070 in August, the metal has traded around its previous all-time high of $1,911 ever since. And though gold has appeared somewhat rangebound over the previous months, Bloomberg Intelligence senior commodity strategist Mike McGlone sees this as a stepping stone on the way towards an even better year.

According to McGlone, the $2,000 level that gold appears to have had difficulty recapturing is poised to become the metal’s next support, making it the asset to beat once again. “In an investment landscape increasingly dominated by how low — or negative — central banks will set base rates, along with rising debt-to-GDP and QE, we see the foundation solidifying under the price of gold. Resistance at about $2,000 an ounce in 2020 is set to transition to support in 2021,” he explained.

McGlone added rising volatility to the list of reasons why he can’t imagine gold’s price rise stopping, especially as the metal has held steadfast to its upwards-pointing 12-month moving average. In what has by now become a common scenario, McGlone expects gold to continue outperforming the record-setting S&P 500 along with sovereign bonds.

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

 

Olduvai IV: Courage
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Olduvai II: Exodus
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