So the modest US tightening of the past year (100 basis point increase in the Fed Funds rate, slight decrease in
This chart is in Chinese yuan, so it’s not immediately clear just how much borrowing is taking place. But converting to dollars yields a monthly average of about $250 billion, or $3 trillion per year. That’s a ton of new debt, much of which generates demand for raw materials from other countries, thus exporting Chinese inflation to the rest of the world.
The European Central Bank is, if anything, even easier. Here’s a brief excerpt from Doug Noland’s latest Credit Bubble Bulletin – which as usual should be read in its entirety by anyone who wants to understand today’s monetary insanity.
ECB chair Mario Draghi: “Inflation is not where we want it to be, and where it should be. We are still confident that it will gradually get there, but it isn’t there yet, and that’s why the Governing Council reiterated that the present very substantial monetary accommodation is still necessary
If central banks have become so keen to protect markets from risk aversion, why shouldn’t the cost of market “insurance” remain extraordinarily low. Why wouldn’t speculators gravitate to products fashioned to profit from providing myriad forms of market risk mitigation (hawking flood insurance during a drought)? And, importantly, as Bubble risks escalate, why would sovereign yields around the globe not discount the high probability that central banks will at some point be called upon to make good on their New Mandate – i.e.
Meanwhile, in Japan, a couple of central bank governors who are reportedly skeptical of hyper-easy money resigned and were replaced by people who were the opposite of skeptical:
Bank of Japan newcomers back 2% price goal
The other new board member, Hitoshi Suzuki, a 63-year-old former deputy president of Bank of Tokyo-Mitsubishi UFJ, who is well-versed with financial markets, said it was “dangerous” to markets to debate an exit from the stimulus now.
“There’s a considerable distance from the 2 per cent target. From my own experience of dealing with markets for 20 years, starting a debate on exit now would be dangerous to
He added that the price target was a high
Here’s the recent increase in the BoJ’s balance sheet – which is another way of saying the amount of money the bank has created and released. Note that it has more than doubled in three years:
So what does all this mean? Here’s Noland’s conclusion:
There is no doubt that central bank liquidity backstops have
After all, who will be on the other side of the trade when all this unwinds? Who will buy when The Crowd moves to hedge/short bursting Bubbles? This is a huge problem. Central bankers have become trapped in policies that promote risk-taking, leveraging and hedging at this precarious late-stage of an historic Global Bubble. These days, central bankers cannot tolerate a “tightening of financial conditions,” and they will have a difficult time convincing speculative markets otherwise.
- Source, John Rubino