When a central bank like the Federal Reserve turns itself into a hedge fund, you know the lunatics have fully taken over the asylum. leverage is leveraged again. madness is the meme.
The Greenspan put has been around at least since 1998 when LTCM was so conveniently bailed out by the Reverend ” free money ” Al. Bernanke has continued the tradition.
The result has been a set of incredible bubbles around the world, in overvalued financial assets and stocks in the West, and in currencies, commodities, real estate, stocks and bonds in all emerging markets.
Without QE oil would certainly not be $100 a barrel, and one million Russian tourists a year would likely not be vacationing in sunny Thailand.
The unwind is starting. Europe is on a one way road to hell. Greece and Cyprus are already there. Spain, France, Portugal, Italy, Slovenia, and others are close behind. every European bank is basically insolvent. Turkey, Brazil, & Argentina are cracking. China is set for a total financial meltdown, mainly self-inflicted, but of course Ben’s easy money has kept the music playing right across Asia for far too long.
Abenomics? two weeks old and already a busted flush.
Goldman Slams Abenomics: “Positive Impact Is Gone, Only High Yields And Volatility Remain; BOJ Credibility At Stake”
Moody’s warns on China local government debt, financing vehicles
First Fitch & now Moody’s is worried about China’s massive credit bubble. This could be the black swan event of 2013. The ability of the mainland’s local governments to repay their debt is being questioned, with analysts warning that the liabilit…
China’s LIBOR Is Spiking, And The Central Bank Isn’t Doing Anything About It
‘Overly rapid credit expansion would not be accomodated.’
Ambrose: If Bernanke really shakes the tree, half the world may fall out
We no longer have a free market. The world’s financial asset prices have become a plaything of central banks and the sovereign wealth funds of a few emerging powers.
Julian Callow from Barclays says they are buying $1.8 trillion worth of AAA or safe-haven bonds each year from an available pool of $2 trillion. Nothing like this has been seen before in modern times, if ever.
The Fed, the ECB, the Bank of England, the Bank of Japan, et al, own $10 trillion in bonds. China, the petro-powers, et al, own another $10 trillion. Between them they have locked up $20 trillion, equal to roughly 25pc of global GDP. They are the market. That is why Fed taper talk has become so neuralgic, and why we all watch Chinese regulators for every clue on policy.
We will find out tomorrow whether Ben Bernanke is ready to blink after the market ructions of the last three weeks, sobered by the cascading upsets across the Brics and mini-Brics; or whether he will stay the course with Fed tapering sooner rather than later.
Obama’s recent comments suggest interest rates could soar this year
Did President Obama just give the signal to short the bond market?
In his comment that Ben Bernanke has served as Fed chairman longer than he has desired, the President has certainly provided a clue that Bernanke may be gone as Fed chairman sooner rather than later.
Indeed, it now appears that Bernanke may be a goner by September.
If this is the timeline we are looking at, interest rates may accelerate their current ascent.
Although interest rates have been on a long term down trend for years (In 1987, interest rates on 10-year notes were as high as 10%, and currently stand at 2.19%), there have been periods when interest rates bucked the downtrend.
Two notable periods that have seen upward moves in interest rates were when Fed chairmen departed.
As Federal Reserve chairman Paul Volcker left the Fed chairmanship in August 1987, the interest rate on the 10-year note climbed from 8.2% to 9.2% between June 1987 and September 1987. This was followed, of course by the October 1987 stock market crash…
Here Are The Warning Signs That Preceded The Last 3 Bond Market Crashes
- 1994: The lead indicators were a pickup in US bank lending and small business hiring intentions, which led to a Q1 payroll shock and caused the Fed to quickly tighten policy.
- 1987: The October crash was preceded by a dangerous combination of rising stocks, bond yields and gold prices, as well as global policy discord, as the Germans and Americans argued about monetary and exchange rate policy.
- 1998: Amidst the ongoing Asian Financial Crisis and Japanese bank bailouts, confusion on how much the Fiscal Investment and Loan Program of the government would buy government bonds caused yields to jump by more than 100 basis points in less than three months, which led to a 13% equity correction.
FORMER FED GOVERNOR: Obama ‘Basically Fired Ben Bernanke On The Spot’
What history says about Ben Bernanke and the “end of QE”
Deja Lu, All Over Again
For Some Areas, the Fed Taper Already Has Begun
As investors prepare for the Federal Reserve’s slow exit from its extraordinary easing measures, it is emerging markets that are taking perhaps the biggest hit.
Measured against total economic output, capital inflow to developing economies has hit its lowest point in five years.
Analysts attribute the cash flow to anticipation that the Fed liquidity that helped drive a global stock market rally is beginning to dry up. They see money now flowing out of parts of Asia and going into cash, or getting teed up for a Europe rebound.
Asia Currency Sell-Off Goes From Bad to Ugly
“We think there is more weakness to come for most currencies as some of the major drivers of Asia FX (forex) appreciation since the global financial crisis are less supportive,” Johanna Chua, chief Asia economist at Citi said in a report.
European Banks Have More Than €1 Trillion of Toxic Assets On Their Balance Sheets, Les Echo Says
ALERT: Peter Morici: As Federal Reserve meets, Americans should consider cutting spending
The Fed Doesn’t Know How To Exit QE, Says David Stockman
Global Systemic Economic Crisis: Devastating Financial Explosion And Social Outburst On A Worldwide Scale
The 2008 shock was certainly violent, but the reactions of the system, countries and central banks with their bailouts on an unprecedented scale, managed to hide the worst consequences: downgrading of the West in general and the United States in particular, a forced cleanup of the economy, a heavy fall from an artificial standard of living, mass unemployment, the beginning of social unrest… have been able to be partly neglected in favour of recovery hopes kept alive by irresponsible policies diverting liquidity to the banking systems and stock exchanges.
Sadly, whilst the world drugged itself, global issues weren’t addressed… five lost years: the building is even less strong than before the crisis; the US “solution” orchestrated by the Fed, that everyone else left it to manage to take the time to dress their own wounds, has been to put out with gasoline the fire which they themselves lit. It’s not surprising then that it is still the US, pillar of the world before, refusing to fall in line, with their faithful Japanese and British floats, which is once again igniting the world situation. And this time, we shouldn’t rely on bankrupt countries to save the situation: they are on their knees following the first shock in 2008.
Therefore, it’s actually a second world crisis which is looming, once again caused by the United States. Ultimately this five-year period will have been nothing other than taking a step back to enter into an even bigger crisis, which we have called “the crisis squared”.