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Quantitative Tightening Print
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Wednesday, 18 October 2017 20:13

QT - is the next big hurdle for markets.

The ECB is telling us they are running out of bonds to buy and it is widely expected that Mario Draghi will have to taper those monthly purchases. Janet Yellen and the Fed are making the same noises. Deutsche Bank's analyst Alan Ruskin

says "by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero." Link to article.

Markets have been, and are, running on QE liquidity since 2008. Every time tapering has been hotly rumoured, markets have corrected and central bankers back away from actually doing the deed of pulling the QE plug - they dare not do it and the reason is as plain as daylight!

It's a very big if. Will they or will they not. If they do, risk assets, real estate will tank along with stock markets. Janet Yellen talks of  "an orderly repricing" Markets don't do orderly - it will be a panic and the western world's Central Bankers know it.

If they don't, and just carry on buying bonds until there are no more available, convential QE will come to a forced end - with the same result.

Janet Yellen has told us "we don't really understand inflation" an extraordinary admission. That statement is just setting us up for the only way out of the QE vs asset price problem. Without a doubt there has been inflation, but mainly in asset values, but not in the purchasing power of the man and woman in the street.

That's the problem. Central bankers thought the feel good factor of higher property valuations would get us all spending again - but it hasn't worked. The averege gal and guy are struggling with austerity. So real inflation has to happen to bail out the western worlds QE obsession. They will find a way of turning the QE trillions into actual cash in our pockets, it's the 'Helicopter money' fix that Ben Bernanke talked about years ago.

It's spare cash to spend that will bring back the feel good factor and real inflation will be allowed to take off and solve the central banks dilema. Who will pay? Those who pay every time. Anyone with cash/bank balances/annuities/fixed incomes/pensions.

 

 

From the blog

Yellen - as clear as?

Markets have been on a roller coaster ride this week with New Zealand earth quakes, the latest Trump's son revelations and then it was Janet's turn today as she attempted to clarify matters US economic to Congress. If you have nothing better to do right now (for the next three hours) you can watch the Youtube video here. This statement sums up her new (lack of) clarity about interest rates:

Read more...

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