This was going to be the year when the other big central banks joined the Fed in “normalizing” interest rates and reversing the past decade’s QE experiment. Instead, the other central banks blinked and went back to aggressive ease, and the Fed is following them. This is a very big deal.
Let’s consider some before-and-after stories:
In September 2018, the European Central Bank began tightening:
European Central Bank to take next step in tapering stimulus
(AP) – The European Central Bank is expected to ratchet back its stimulus efforts again on Thursday as it gingerly phases out extraordinary support for the economy left over from the Great Recession and the euro currency union’s debt crisis.
The bank’s 25-member governing council is expected to cut its monthly bond-purchase stimulus to 15 billion euros ($17.4 billion) a month from 30 billion a month, on the way to ending the purchases at the end of the year.
Reinhard Cluse, chief European economist for UBS, said that after the June meeting “the ECB is now essentially on autopilot.” Cluse said that the ECB can phase out the bond purchases and then decide the exact timing of next year’s first rate increase in the summer or fall.
But before any actual tightening took place, the EU economy slowed and turmoil flared in Italy and France. This week:
European Central Bank announces major policy reversal
(WSWS) – The European Central Bank has reversed its policy of slight monetary tightening and announced a new stimulus package in the face of data which show a sharp downturn in growth in the euro zone. The unanimous decision was taken at the meeting of the ECB’s governing council held in Frankfurt yesterday.
The decision came just three months after the central bank announced it was phasing out its asset purchasing program. The bank indicated it would keep interest rates at historic lows at least until next year and potentially indefinitely and set out a new program to offer cheap loans to euro zone banks.
It also indicated it would continue to reinvest the proceeds of bonds which mature under its €2.6 trillion quantitative easing program for an “extended period of time” with reinvestments amounting to about €20 billion a month.
The decision by the ECB came as a result of what president Mario Draghi characterised as a “substantial” downward revision of growth estimates for the region. He said the new outlook for annual growth in gross domestic product was 1.1 percent for 2019, 1.6 percent for 2020 and 1.5 percent in 2021.
In Japan, which has pioneered both negative interest rates and aggressive central bank asset buying, speculation began in 2018 that the Bank of Japan would start raising rates. From a Nikkei/Asia article:
Speculation that the bank would tinker with monetary policy rose when Kuroda mentioned the concept of the “reversal interest rate” in a speech he gave in Zurich in November.
The “reversal interest rate” refers to the process whereby excessively low interest rates hurt the banking sector, making it harder for banks to act as financial intermediaries. In such a case, the effects of monetary easing could reverse and become contractionary.
Those comments led market participants to speculate that the BOJ was becoming concerned about overly low interest rates, and that it might be leaning toward tightening sooner than expected.
But the BoJ “quelled” that talk in December:
Bank of Japan’s Kuroda quells talk of monetary tightening
(Nikkei) – Bank of Japan Gov. Haruhiko Kuroda has moved to quell recent market speculation that the central bank will tighten the monetary taps, saying it will continue its monetary easing measures in light of weak inflation.
Kuroda’s remarks came as the BOJ concluded its two-day monetary policy meeting on Thursday, during which it decided to maintain its negative interest rate policy, as well as keeping the yield on 10-year Japanese government bonds near zero, despite Japan’s gross domestic product registering a seventh consecutive quarter of growth in July-September period — the first time in 29 years that an expansion has run so long.
“We won’t decide to raise our interest rates just because the economy is in good shape,” Kuroda said at a news conference in Tokyo the same day. “What is important is for us to continue our monetary easing with persistence, creating an environment where our 2% inflation target can be achieved and maintained in a stable manner.”
The Fed, meanwhile, has been the only central bank actually tightening rather than just discussing it. And until very recently Fed Chair Jerome Powell saw the process continuing. From the Wall Street Journal in October:
Mr. Powell also said he believes the U.S. economy is “a long way from neutral”—referring to the point at which interest rates are neither spurring nor slowing economy growth. It is an important focus for Fed officials, some of whom have argued the central bank should stop raising interest rates once they reach that neutral point.
That didn’t work out either. Stocks fell hard and in the late January Fed meeting Powell took it all back:
(Wall Street Journal) – By Wednesday morning, the chances implied by the futures market of any rate increase over the course of 2019 had shriveled to barely 25% and the odds of a cut were over 5%, according to analysts at Bespoke Investment Group. The famously plain-spoken Mr. Powell left the market with little doubt that the probability of tightening had shifted, noting on Wednesday that “the case for raising rates has weakened.”
But policy rates are only part of the story these days. Since the financial crisis, the Fed has used its balance sheet as a powerful tool, buying bonds to affect the shape of the yield curve. Since late 2016, it had begun to slowly unwind those purchases, most recently at a pace of $50 billion a month—a huge number in almost any other context, but not much compared with what was a $4.4 trillion balance sheet. The Fed’s balance sheet has only shrunk by about 10%.
In what arguably was Mr. Powell’s most significant statement on Wednesday, he struck a dovish tone on this process of “balance-sheet normalization.” The signal was that so-called quantitative tightening would continue for now but end sooner than expected. Moreover, he also raised the possibility that the balance sheet could be “an active tool” in the future if warranted—in other words, more bond purchases if markets or the economy cry out for help. Until recently, Fed officials had been insisting the balance-sheet shrinkage was on autopilot.
What does this mean? Several things, all of them momentous:
• 10 years into an expansion, with unemployment below 5% and officially reported inflation at the central bank target of 2%, the global economy is still too fragile to handle historically normal interest rates. The structural weakness that that implies is absolutely terrifying.
• If central banks can’t normalize monetary policy now, they’ll never be able to. Let that sink in. The old conception of monetary policy is over for the remaining life of the current global financial system.
• Since debt is soaring even in this late stage of the expansion with most people working and paying taxes, the financial headwinds that now prevent rate normalization will continue to strengthen. If 2% inflation is necessary to stave off collapse today, then 3% will be necessary shortly. Then 4% and so on, again, for the remaining life of this financial system.
How much time is left? That’s unknowable of course, but it’s fairly safe to say that this central bank course reversal has ushered in the final chapter.
12 thoughts on "Central Banks Cave, Usher In The Crack-Up Boom"
I admit that things are starting to get more exciting but I hope we’re not jinxing things by jumping the gun. In my opinion, it’s an actual REVERSAL by the Fed that’s going to be the lynch pin. After all, did anyone really think that Japan and Europe would stop their addiction?
The world learned during WW 2 how stubborn and deluded the Japanese can be so why would the the “inventors” of QE stop when by every measure it still hasn’t worked. The yen is still “strong,” “dreaded” price deflation is still prevalent, the Nikkei is up, Japanese government bonds are in more demand than ever, and nobody seems to care about their national debt to GDP ratio (about 250% and counting.) It’s not like a central bank to analyze things correctly and change course before it’s too late, so why would the BOJ be different?
Similarly, Europe has been the land of spineless progressivism for over a century so why would the ECB stop enabling things now?, especially since the most “disadvantaged” countries are relapsing gain. Real news would have been if Draghi and his many bureaucratic minions actually did what they said they would.
So, it’s the hoitytoity Fed with the bulls eye on its back now. Diminishing its balance sheet four years after stopping QE was expected – or should have been, especially since the economy was supposed to be strengthening – but backing off on that was NOT expected – but should have been, except that too many “investors” still think the Fed has credibility, and is different than the other CB’s. So, those same investors are now a little confused. Is the Fed now becoming predictable? Are the days of Fed watching and endless debates about what the Fed will do next becoming passe? Are we all having to admit that – like the ECB, BOJ et al – the Fed will ALWAYS take the easy road? Is the holy grail of finance – the ability to accurately predict interest rates – no longer a talent? Will EVERYBODY now know that they’ll always be lower? Talk about one-sided trades … oh, whoops!, silly me, … I almost fell into the old habit of thinking that could be unstable.
The G7 is made up of Canada, France, Germany, Italy, Japan, the
United Kingdom, and the United States, but countries such as Australia,
China, and the European Union are being sucked into this exponential
debt bomb! This is being done by the BIS, the IMF, the FED and all their
central bank stooges in those countries who are forcing huge public and
private debt till it all implodes in one massive debt crisis that takes
down all fiat currency!
Unlike the two previous manufactured economic crises in 2001~2003 and
2007~2009, this one is going to include the 1st four seals that Jesus
opens during the 1st half of the tribulation:
1st seal ~ white horse ~ spiritual war ~ manchild ~ Moses was a type! ~ possibly 2021
2nd seal ~ red horse ~ physical war as peace is taken from the earth ~ possibly 2022
3rd seal ~ black horse ~ famine from both inflation and crop failure ~ possibly 2023
4th seal ~ pale horse ~ death that follows those 3 horses ~ possibly 2024
We are in the morning of the 3rd day from the birth of Jesus when the
manchild is born and the spiritual war is brought to the earth as these
3 passages prove when studied together:
2 Peter 3:8 But forget not this one thing, beloved, that one day is
with the Lord as a thousand years, and a thousand years as one day.
Hosea 6:1-3 Come, and let us return unto Jehovah; for he hath torn,
and he will heal us; he hath smitten, and he will bind us up. (2)
After two days will he revive us: on the third day he will raise us up,
and we shall live before him. (3) And let us know, let us follow on to
know Jehovah: his going forth is sure as the morning; and he will come
unto us as the rain, as the latter rain that watereth the earth.
Revelation 12:5-9 And she was delivered of a son, a man child, who
is to rule all the nations with a rod of iron: and her child was caught
up unto God, and unto his throne. (6) And the woman fled into the
wilderness, where she hath a place prepared of God, that there they may
nourish her a thousand two hundred and threescore days. (7) And there
was war in heaven: Michael and his angels going forth to war with the
dragon; and the dragon warred and his angels; (8) and they prevailed
not, neither was their place found any more in heaven. (9) And the
great dragon was cast down, the old serpent, he that is called the Devil
and Satan, the deceiver of the whole world; he was cast down to the
earth, and his angels were cast down with him.
Is the church preparing for this spiritual war that He must bring to them to cleanse His body?:
https://sumofthyword.com/2017/01/18/the-mystery-of-lawlessness/
The G7 is made up of Canada, France, Germany, Italy, Japan, the
United Kingdom, and the United States, but countries such as Australia,
China, and the European Union are being sucked into this exponential
debt bomb! This is being done by the BIS, the IMF, the FED and all their
central bank stooges in those countries who are forcing huge public and
private debt till it all implodes in one massive debt crisis that takes
down all fiat currency:
https://www.youtube.com/watch?v=w7BxygWC1zI
Unlike the two previous manufactured economic crises in 2001~2003 and
2007~2009, this one is going to include the 1st four seals that Jesus
opens during the 1st half of the tribulation:
1st seal ~ white horse ~ spiritual war ~ manchild ~ Moses was a type! ~ possibly 2021
2nd seal ~ red horse ~ physical war as peace is taken from the earth ~ possibly 2022
3rd seal ~ black horse ~ famine from both inflation and crop failure ~ possibly 2023
4th seal ~ pale horse ~ death that follows those 3 horses ~ possibly 2024
We are in the morning of the 3rd day from the birth of Jesus when the
manchild is born and the spiritual war is brought to the earth as these
3 passages prove when studied together:
2 Peter 3:8 But forget not this one thing, beloved, that one day is
with the Lord as a thousand years, and a thousand years as one day.
Hosea 6:1-3 Come, and let us return unto Jehovah; for he hath torn,
and he will heal us; he hath smitten, and he will bind us up. (2)
After two days will he revive us: on the third day he will raise us up,
and we shall live before him. (3) And let us know, let us follow on to
know Jehovah: his going forth is sure as the morning; and he will come
unto us as the rain, as the latter rain that watereth the earth.
Revelation 12:5-9 And she was delivered of a son, a man child, who
is to rule all the nations with a rod of iron: and her child was caught
up unto God, and unto his throne. (6) And the woman fled into the
wilderness, where she hath a place prepared of God, that there they may
nourish her a thousand two hundred and threescore days. (7) And there
was war in heaven: Michael and his angels going forth to war with the
dragon; and the dragon warred and his angels; (8) and they prevailed
not, neither was their place found any more in heaven. (9) And the
great dragon was cast down, the old serpent, he that is called the Devil
and Satan, the deceiver of the whole world; he was cast down to the
earth, and his angels were cast down with him.
Is the church preparing for this spiritual war that He must bring to them to cleanse His body?:
https://sumofthyword.com/2017/01/18/the-mystery-of-lawlessness/
All this money printing won’t change a thing. The reality is that the global economy is based and reliant on energy, it’s extraction and application and is measured by the key formula of “Energy Returned on Energy Invested” (EROEI) – in other words net energy available for use. When oil was first discovered EROEI was 100+:1 – 100 barrels of oil from one barrel of oil invested. We are now at 10:1 ratio which is insufficient net energy to keep our current global economic systems going.
We are in fact in crisis already but it is being covered up with false statistics about GDP et al (itself gamed) and debt issued by central banks. But the people do know the truth because their standard of living is falling and their wages have stagnated. The financial and money arena is merely a ‘claim’ on the real resources needed to fuel our economies so printing more money achieves nothing in the real world.
I have written a book about all this and a free pdf of my manuscript is available on request to: peter@underco.co.uk or to know more about EROEI read:
https://www.amazon.co.uk/Life-After-Growth-global-economy-ebook/dp/B00F3D8M2C
Home based work opportunities have become a emerging trend in all over world now. A current survey shows even more than 71% of people are doing work in internet based job opportunities from home without the complications. Everyone hopes to spend more time with his/her family by getting out for any lovely place in the country or any other country. So online earning allows you to complete the work at any time you want and enjoy your life. However selecting the right direction and also setting up the right objective is our ambition toward financial success. Already lots of people are earning such a good income of $39000 each and every week through highly recommended and powerful methods of earning money online. You can start to earn from the first day as soon as you browse through our website. >>>>> http://aadgo.com/x1bpR
Current poll reveals that more than 75% people are engrossed into web browsing activities. The internet arena has become bigger and much better and making lots of money making opportunities. Working from home online jobs are trending and transforming people’s lives. The reason why it is actually widely used? Mainly because it enables you to work from anywhere and anytime. You receive more time to devote with people you care about and can plan out trips for holidays. A lot of people are earning pleasant income of $20000 per week by utilizing the efficient and intelligent ways. Doing right work in a right direction will definitely lead us towards success. You can begin to earn from the first day as soon as you check out our site. >>>>> REGISTER
Earn per month Up to $5029 by working with ResMed at home. There are various great things about working via internet in your house for instance you can be your own boss. There is no one saying to you what to do,use your laptop computer with internet connection, take it to seaside beach or a park or mountain, and complete your tasks peacefully with nature, earning potential is unlimited all depending on you. You will be able to fulfill all yourhopes and dreams by working via internet ,which has boundaries when you work 9am to 5pm in a office job. You would like to spend more time with your family members ,or go on a familytrip? On job you need to seek permission from your manager. Online earning, simply take your laptop along with you on your family vacation.You have the luxury to be financially FREE. Here’s the simplest way to start >>>> http://4sq.re/wkn24
I do remember the moment when I lost my occupation few months back from my organization where I have given a lot of time and hardwork. I was by no means into schemes such as get rich “overnight” which later turned into an internet marketing strategies where you ought to firstly get very interested people after that sell a product to friends or any individual to make sure that they will be in your group. This on-line job has given me flexibility to work at home and now a days I am able to enjoy valuable time with my family members and get ample spare time to go out on a family journeys. This job has offered me an opportunity to get income nearly $18,000-$19,000 every month by doing easy online work. Go and look at the most excellent work opportunity.>>>>>>>>>>>>> https://s.id/4sm2W
Year of Jubilee is coming to those who have an ear to hear.
There is no good in Jealousy. Satan’s fall was because of his jealousy. Satan appears as a messenger of light. Those who judge on mere appearances exercise poor judgment. There is a way that seems right to a person, but its end is the way that leads to death. Let that sink in “for those who have ears to hear” that worship a jealous ‘god’.
Affiliate jobs are increasingly becoming a emerging trend in all over world these days. A newly released study shows even more than 76% of people are doing work in internet based work at home with no difficulty. Everybody desires to spend more time with his/her mates by going any specific lovely place in the world. So web-based earning enables you to carry out the work at any time you want and enjoy your life. Though finding the right direction furthermore setting up the proper objective is our end goal towards achieving success. Already a lot of people are bringing in such a solid revenue of $14000 every single week making use of suggested as well as successful ways to generating income on line. You can start to earn from the 1st day once you check out our web site. >>>>> https://iplogger.org/2L6Cj5
So sad, too bad, lost the greatest country we ever had. I had voted for less government for nearly fifty years of voting and all I got was more government. I had quit voting but got out there one more time in hopes that the all-over-the -place-Trump might fulfill a couple of his campaign ideas……so sad, too bad. See you on the other side of this mess.