Category: QE

We talked to an economist who predicted the Great Recession about the next financial crisis

BusinessInsider/Graham Rapier & Sara Silverstein/12-01-17

Instead of using traditional macroeconomic models, Rickards prefers to borrow one from physics: complexity theory. Using this framework, Rickards proposes a scenario in which the world shifts partially back to the gold standard, with an ounce of gold being valued at $10,000 per ounce.

PG View: The Rickards segment begins at 2:05 and ends at 11:13.

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Posted in Central Banks, Economy, Fed, Gold News, Gold Price, Gold Views, Markets, QE |

Top Central Bankers Defend Stimulus Efforts

WSJ/Tom Fairless/11-14-17

The heads of four of the world’s most important central banks defended their sweeping crisis-fighting measures in a rare joint appearance, and discussed how words themselves have become a vital policy tool.

The leaders of the Federal Reserve, European Central Bank, Bank of Japan and Bank of England—whose terms all end in the next two years—have relied heavily on verbal communication in recent years as their policy decisions have grown more complex.

…The Bank of Japan has been at the core of efforts to shake off a cycle of weak inflation and growth. BOJ governor Haruhiko Kuroda defended his track record on Tuesday, including a controversial decision in 2016 to push interest rates below zero. The bank’s “strong commitment did work to some extent,” he said.

PG View: Hey it’s working “to some extent” in Japan, but at what cost? The BoJ’s balance sheet is darn-near 100% of GDP!

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Posted in Central Banks, Monetary Policy, QE |

BOJ to persist with monetary easing to boost inflation: Kuroda

Reuters/John Revill/11-13-17

The Bank of Japan will continue to persist with “powerful monetary easing” to nurture positive inflation developments, BoJ Governor Haruhiko Kuroda said in Zurich on Monday.

“Going forward, with the output gap improving steadily, firms’ stance is likely to gradually shift toward raising wages and prices,” Kuroda said in a lecture at the University of Zurich. “If further price rises come to be widespread, inflation expectations are likely to rise steadily.”

PG View: The BoJ has been saying the same thing for more than 20-years . . .

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Posted in BoJ, Central Banks, Deflation, inflation, Monetary Policy, QE |

Bank of Japan keeps policy on hold


FT/Robin Harding/10-31-17

The Bank of Japan has kept monetary policy on hold as it made slight downgrades to inflation forecasts but predicted steady economic expansion.

It kept short-term interest rates at minus 0.1 per cent, a cap on 10-year bond yields at “around zero” and pledged to carry on buying assets at a pace of ¥80tn a year as it strives to end two decades of on-and-off deflation.

The continued optimism of the bank’s inflation forecasts suggests it believes the economy is on track and there is no need for extra monetary stimulus.

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Posted in BoJ, Central Banks, Monetary Policy, QE |

ECB to extend QE until September at lower rate of €30bn a month


FT/Claire Jones/10-26-17

The European Central Bank will extend its bond-buying scheme until at least September next year and possibly beyond to keep the eurozone recovery on track but will halve its rate of purchases to €30bn a month.

…The ECB struck a dovish tone, saying it stood ready to extend QE beyond September or even raise the level of monthly purchases should conditions worsen again. It also stuck to its line about keeping rates lower until well after it stops its bond purchases.

Mario Draghi, ECB president, said the changes announced on Thursday did not amount to a “tapering” of QE but a “down size” to a programme that remained “open-ended”.

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Posted in Central Banks, ECB, Monetary Policy, QE |

ECB leaves rates unchanged, in line with expectations. QE extended for 9-months, but reduced to €30 bln. Draghi presser underway.

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Posted in Central Banks, ECB, Monetary Policy, QE |

Yellen Says Fed’s Extraordinary Policies May Be Needed Again


AP, via USNews/Paul Wiseman/10-20-17

Federal Reserve Chair Janet Yellen on Friday defended the central bank’s extraordinary efforts to fight the Great Recession and said they might be needed again.

During the recession, the Fed pushed short-term interest rates to zero. When the economy needed more help, it took the extraordinary step of buying hundreds of billions of dollars’ worth of bonds to push long-term interest rates lower.

…Yellen said the Fed likely will have to turn to bond purchases again — even in a downturn that isn’t as bad as the 2007-2009 Great Recession, which was the worst since the 1930s.

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Posted in Central Banks, Fed, Monetary Policy, QE |

The world’s largest hedge fund told clients the Fed is making a mistake


BusinessInsider/Rachael Levy/09-28-17

“The Fed is basing its moves on classic cyclical indicators and the desire to ‘normalize’ the balance sheet,” Bridgewater Associates told clients in a private note, which was seen by Business Insider. “Based on the calculations that we do, we doubt that the Fed will be able to execute its plan without causing problems.”

Reason 1 (of 5): “There is not nearly enough inflation and overheating risk to make concerns about inflation and overheating of paramount importance.”

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Posted in Central Banks, Fed, inflation, Monetary Policy, QE |

Outside the Box Low Inflation Is No “Mystery”

Mauldin Economics/John Mauldin/09-27-17

When is a mystery not a mystery? When Janet Yellen is puzzling over a lack of inflation, that’s when. So say Brian Wesbury, chief economist, and Robert Stein, deputy chief economist of First Trust, in today’s Outside the Box. The bottom line: QE didn’t work, and Janet knew it was unlikely to work, from the start.

…So forgive us for asking, but after unprecedented expansion of banking reserves and the Fed balance sheet, with little inflation, is it really a “mystery?” Or, is it proof of what we believed all along: QE didn’t work?

…instead of boosting Milton Friedman’s key money number (M2), the excess monetary base growth went into “excess reserves” – money the banks hold as deposits, but don’t lend out. Money in the warehouse (or in this case, credits on a computer) doesn’t boost demand! This is why real GDP and inflation (nominal GDP) never accelerated in line with monetary base growth.

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Posted in BoE, BoJ, Central Banks, ECB, Fed, inflation, Monetary Policy, QE |

Fed economist: ‘No evidence that QE works’ as central bank starts unwinding program

CNBC/Jeff Cox/09-19-17

The Federal Reserve is on the cusp of reversing the most ambitious monetary stimulus program in world history amid questions over how much impact it really delivered.

There’s little question that the program, known as quantitative easing or “money printing,” boosted the stock market.

…”Evaluating the effects of monetary policy is difficult, even in the case of conventional interest rate policy,” St. Louis Fed economist Stephen D. Williamson wrote. “With respect to QE, there are good reasons to be skeptical that it works as advertised, and some economists have made a good case that QE is actually detrimental.”

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Posted in Central Banks, Fed, Monetary Policy, QE |

ECB steady on policy, remains prepared to extend QE if necessary. Inflation forecast trimmed for 2018 and 2019 on strong EUR. Draghi presser underway.

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Posted in Central Banks, ECB, Monetary Policy, QE |

Martin Wolf: Nothing like this has happened in 323 years


FT/Martin Wolf/08-15-17

The Bank of England was founded just over 323 years ago, in July 1694, at the instigation of King William III. It is the second oldest continuously-functioning central bank in the world, after Sweden’s Sveriges Riksbank, founded in 1668.

The Bank of England supported the UK’s public finances and stabilised the British financial system through the wars with Revolutionary and Napoleonic France, two world wars and the Great Depression. Throughout that period, the Bank has made secured overnight loans to commercial banks (under different names).

Prior to January 2009, the Bank had never lowered its lending rate below 2 per cent. But it was then lowered to 1.5 per cent, on its way to 0.5 per cent in March 2009 and 0.25 per cent in August 2016. This ultra-easy policy was further buttressed by a huge expansion of the Bank’s balance sheet, which now contains £435bn in UK government “gilt-edged” securities and £10bn in corporate bonds.

Throughout this prolonged recent period of ultra-easy monetary policy, the concern has never been one of runaway inflation, but rather of the opposite. This time really has been different. What does it mean for the future? Nobody knows.

PG View: The chart accompanying this article is fascinating. Worth noting that the Riksbank repo rate was as low as 0.25% in 2009 and early 2010 and remains below 2% to this day (1.5%).

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Posted in Central Banks, Monetary Policy, QE |

The Greater Moderation

Money Strong/Danielle DiMartino Booth/07-26-17

It’s no secret that the Bank of England, Bank of Japan and European Central Bank have been aggressively flooding their respective economies and in turn, the global financial system, with liquidity in some form of quantitative easing. If there is one lesson to be learned from The Great Moderation, it is that liquidity acts as a shock absorber.

In a less liquid world, the crash in oil prices would have resulted in a bankruptcy bloodbath. In a less liquid world, the bursting of the housing bubble would have led to millions of foreclosed homes clearing at fire sale prices. In a less liquid world, highly leveraged firms would have been rendered insolvent and incapable of covering their interest costs.

In short, a less liquid world would be smaller, for a time. But when the time came to allow nature to take its course, central bankers could not bear the pain, nor muster the discipline, to allow creative destruction to cull the weakest from the herd. Their policies have forced us to pay a dear price to maintain a population of inefficient operators.

So we have one-in-ten firms effectively sucking the life out of the world economy’s ability to regenerate itself. There is no such thing as a productivity conundrum against a backdrop of such widespread misallocation of capital and labor. There is no mystery cloaking the breakdown in new business formation. And there is no enigma, much less any reason to assign armies of economists to investigate, shrouding the new abnormality we’ve come to know as a low growth world.

There is simply no room for an economy to excel when its growth potential is choked off by an overabundance of liquidity that is perverting incentives. What is left behind is a yield drought, one that has left the whole of the world painfully parched for income and returns and yet too weary to conduct fundamental risk analysis.

PG View: This is an excellent essay by former Fed insider Danielle DiMartino Booth. I highly encourage you to read it in its entirety and realize too that, “The Fed’s actions have not saved the little guy; they’ve skewered him.”

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Posted in Central Banks, Monetary Policy, Negative interest rates, QE |

Week in Review (Video) July 20, 2017

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Posted in Central Banks, Gold News, Gold Views, inflation, Monetary Policy, QE, U.S. Dollar, USAGOLD TV |

ECB rules out rate cut but confirms QE until year end


FT/Claire Jones & Mehreen Khan/06-08-17

The European Central Bank took a first small step towards scaling back ultraloose policy when it said it would not cut its record-low interest rates any further, as it seeks to adjust to a surprisingly strong eurozone recovery.

In closely watched forward guidance published after a meeting in Tallinn on Thursday, the ECB omitted a reference made in earlier statements to cutting rates to “lower levels” if warranted.

The bank also confirmed that it would continue its €60bn a month asset purchase programme until the end of the year or beyond if necessary and left interest rates unchanged at 0 per cent for the base rate and minus 0.4 per cent for the bank deposit rate.

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Posted in Central Banks, Monetary Policy, QE |

Fed ties rate hike to economic rebound, sees balance sheet cuts in 2017

Reuters/Jason Lange & Howard Schneider/05-24-17

Federal Reserve policymakers agreed they should hold off on raising interest rates until it was clear a recent U.S. economic slowdown was temporary, though most said a hike was coming soon, minutes from their last policy meeting showed on Wednesday.

Nearly all policymakers at the May 2-3 meeting also said they favored beginning the wind-down of the U.S. central bank’s massive holdings of Treasury debt and mortgage-backed securities this year.

While investors continue to see a rate increase as highly likely next month, the minutes showed that the Fed’s rate-setting committee “generally” believed it hinged on the economy rebounding from its sharp slowdown in the first quarter.

“Members generally judged that it would be prudent to await additional evidence indicating that a recent slowdown in the pace of economic activity had been transitory before taking another step in removing accommodation.” — FOMC Minutes

PG View: The post release drop in yields and the dollar — and rise in gold — is reflective of modest ebb in June rate hike expectations. The Fed rightfully remains cautious.

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Posted in Central Banks, Monetary Policy, QE |

A $1 Trillion Pain Trade in Treasuries Divides Top Bond Dealers

Bloomberg/Liz McCormick & Alex Harris/05-14-17

To appreciate just how important the Federal Reserve has been to the U.S. Treasury, consider this simple fact: It alone financed roughly 40 percent of America’s budget deficit last year.

So as Fed officials talk up the possibility of unwinding the central bank’s crisis-era bond holdings later this year, figuring out what will happen when the U.S. loses its biggest source of funding has become a pressing concern.

PG View: This is why I think talk of balance sheet normalization is nothing more than hawkish jawboning, particularly in light of the fact that foreign buyers of Treasuries are pulling back.

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Posted in Central Banks, Debt, Monetary Policy, QE |

What Happens When Central Banks Stop Buying Bonds?

WSJ/Jon Sindreu/05-10-17

Central banks have been the world’s biggest buyers of government bonds, but may soon stop—a tidal shift for global markets. Yet investors can’t agree on what that shift will mean.

Part of the problem is that there is little agreement about how the massive stimulus policies, known as quantitative easing or QE, affected bonds in the first place. That makes it especially hard to assess what happens when the tide changes.

…When the unwinding begins money managers may not be positioned for it, and markets could move swiftly. In the summer of 2013, investors suddenly got spooked about the Federal Reserve withdrawing stimulus, leading to a swift bond sell off that sent yields on the 10-year Treasury up by more than 1 percentage point.

“If it’s unclear what benefits we’ve had in the buying, it’s unclear what will happen in the selling,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors.

PG View: That’s a big question…a $13.3 trillion question (ECB $4.5T, Fed $4.4T, BoJ $4.4T).

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Posted in Central Banks, Monetary Policy, QE |

Mario Draghi Brushes Off Calls to End ECB’s Monetary Stimulus

WSJ/Tom Fairless & Todd Buell/05-10-17

European Central Bank President Mario Draghi defended the ECB’s monetary stimulus before Dutch lawmakers on Wednesday in a rare visit to a national parliament, as pressure builds in Northern Europe for a policy change from Frankfurt.

Speaking in the Dutch Lower House, Mr. Draghi argued that the ECB’s large-scale bond purchases and subzero rates have helped support local households and the national budget.

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Posted in Central Banks, Monetary Policy, QE |

ECB keeps quantitative easing in place before decisive French vote

FT/Claire Jones/04-27-17

The eurozone’s policymakers have kept their aggressive monetary easing in place ahead of the decisive round of the French presidential election but Mario Draghi hailed improving economic growth.

The European Central Bank’s governing council left its benchmark main refinancing rate at zero and the deposit rate at minus 0.4 per cent. The region’s central bankers will continue to buy €60bn in mostly government bonds under a quantitative easing programme that will run until at least the end of this year.

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Posted in Central Banks, Monetary Policy, QE |

ECB steady on rates and QE schedule, in line with expectations.

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Posted in Central Banks, Monetary Policy, QE |

Markets Start to Ponder the $13 Trillion Gorilla in the Room

Bloomberg/Enda Curran, Liz McCormick & Eric Lam/04-18-17

After heading into the uncharted territory of quantitative easing, the world’s central banks are starting to plan their course through the uncharted waters of quantitative tightening.

How the Federal Reserve, European Central Bank and — eventually — the Bank of Japan handle the transition could make the difference between a global rerun of the 2013 “taper tantrum,” or the near undetectable market response to China’s run-down of U.S. Treasuries in recent years. Combined, the balance sheets of the three now total about $13 trillion, equating to greater than either China’s or the euro region’s economy.

“You know what they say about mountaineering right? The descent is always more dangerous than the ascent,” said Stephen Jen, London-based chief executive of hedge fund Eurizon SLJ Capital Ltd. “Shrinking the balance sheet will be the descent.”

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Posted in Central Banks, Monetary Policy, QE |

Bond Traders Ignore Fed Balance Sheet at Their Peril

Bloomberg/Lisa Abramowicz/04-05-17

The Federal Reserve is trying to send a message to bond traders: prepare for a reduction in its $4.5 trillion balance sheet. But the traders aren’t buying it yet.

Such a move would most likely cause longer-term borrowing costs to rise because the Fed has been a large buyer of Treasuries and mortgage debt since the 2008 financial crisis. More than $400 billion of its holdings is set to mature next year, so a reduction in the Fed’s reinvestment could potentially depress market values.

…im Bianco, founder and head of Bianco Research in Chicago, said many traders think the Fed won’t make a move until 2020 or beyond.

“It is a mistake to conclude that the current talk means the market is fine with the balance sheet being reduced,” he said.

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Posted in Central Banks, Markets, Monetary Policy, QE |

Fed Is Expected to Pare Investment Holdings, Officials Signal


NYT/Binyamin Applebaum/04-05-17

Most Federal Reserve officials expect the Fed to begin reducing its huge investment holdings later this year, an important step toward ending the Fed’s post-2008 economic stimulus campaign.

Officials discussed the change at the Fed’s most recent meeting in March, according to an official account that the Fed published on Wednesday. No decision was reached about the timing or the details of the move. However, if the economy continues to grow, most officials “judged that a change to the committee’s reinvestment policy would likely be appropriate later this year.”

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Posted in Central Banks, Monetary Policy, QE |

ECB holds rates at record lows as inflation rises

FT/Claire Jones/03-09-17

The European Central Bank has kept interest rates on hold at record lows, despite internal pressure from hawks for Mario Draghi to start reining in the currency bloc’s monetary stimulus.Watch movie online The Transporter Refueled (2015)

…Despite the concern of governing council members who have highlighted rising inflation, the ECB’s statement also reaffirmed the bank’s landmark quantitative easing programme, which is due to purchase €780bn worth of bonds this year.

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Posted in Central Banks, Monetary Policy, QE |

ECB left monetary policy unchanged, maintains QE schedule and easing bias, but Draghi hints at slow move toward neutral bias.

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Posted in Central Banks, Monetary Policy, QE |

The World’s Most Radical Experiment in Monetary Policy Isn’t Working

WSJ/John Lyons & Miho Inada/02-26-17

Japan remains definitively stuck, despite a long and aggressive experiment with ultralow rates. A quarter-century after its property bubble burst, a penny-pinching generation has come of age knowing only economic malaise, stagnant wages and deflation—a condition where prices fall instead of rise.

The belief that deflation will continue has become so ingrained it has presented seemingly insurmountable challenges to monetary policy, a lesson for other countries that are traveling a similar path.

“It is hard to change the deflationary mind-set even with radical policies,” says Frederic Neumann, co-head of Asia economics for HSBC. “I would argue Japan will remain in its funk and will remain there for many years.”

PG View: I would suggest Japan may be stuck indefinitely . . .

So, is the Fed moving ever-so-slowly in the opposite direction in recognition of this harsh reality? Or are they just giving themselves a little clearance above the zero-bound so they can do more if it?

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Posted in Central Banks, Monetary Policy, Negative interest rates, QE |

Here Is How the Federal Reserve Could End the Bull Market in Stocks


TheStreet/Scott Gamm/02-15-17

The Federal Reserve is stuck in a major pickle — and it’s not about how many times to raise interest rates this year.

The problem stems from years and years of asset purchases — known as quantitative easing. Under the program, the Fed purchased bonds and mortgage-backed securities from banks in the years following the 2008 financial crisis, hoping the companies would use the cash to lend money and stimulate the economy.

PG View: When the Fed ultimately moves to start unwinding its $4.5 trillion balance sheet it could prove incredibly disruptive to markets. And what do you suppose are the odds of another crisis hitting before the balance sheet is fully unwound? I’d say very high as this is likely to be multi-decade process.

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Posted in Central Banks, Monetary Policy, QE |

BoJ holds steady on policy in line with expectations. Kuroda says it’s still too early to discuss QQE exit strategies.

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Posted in Central Banks, Monetary Policy, QE |

The Japanese yen is tumbling


BusinessInsider/Elena Holodny/12-20-16

The Japanese yen is tumbling after the Bank of Japan kept policy on hold, as virtually all analysts were expecting.

At its Tuesday meeting, the BOJ said it would continue to purchase Japanese government bonds at an annual pace of about 80 trillion yen to maintain a 10-year JGB yield of about 0%.

Interest rates were also left unchanged at -0.1%.

PG View: While this decision was widely anticipated, and Kuroda seemed a little more upbeat on the economy, it seems unlikely the BoJ will take it’s foot off the gas any time soon. This is helping to push the dollar higher and weighing on gold in the process.

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Posted in Central Banks, Monetary Policy, Negative interest rates, QE, U.S. Dollar |