• Tag Archives Quantitative Easing
  • Gold Price Slips vs. Falling Dollar as Oil Bounces, Bank of England Split Boosts ‘Brexit-Hit’ Pound

    Gold prices held near 5-week lows against a falling US Dollar on Wednesday, trading at $1243 per ounce as commodities rallied but world stock markets extended Tuesday’s retreat in New York.
    As Brent crude oil rallied $1 per barrel from yesterday’s 7-month lows near $45, that pulled the EuroStoxx 50 index of major European shares more than 1% lower.
    The British Pound meantime rallied after a split emerged amongst senior Bank of England policymakers over holding or raising UK interest rates from the current all-time record low of 0.25% with 435 billion ($550bn) of quantitative easing bond purchases.
    Check out Global Liquidity Reaching a Tipping Point
    The Euro currency also rallied against the Dollar but held 1 cent below last week’s peak, the highest level since Donald Trump won the US presidential election last November.
    The gold price for Eurozone investors fell below 1115 per ounce, near its lowest level since January.

    This post was published at FinancialSense on 06/21/2017.


  • When Will Janet Live Up To Her Reputation?

    I am asking you to put aside all your notions about monetary policy for a moment, and think about the next couple of points with an open mind. Forget about scary Central Bank balance sheets. Fight the urge to worry about the unprecedented quantitative easing programs. Dismiss the warning cries of the frightening levels of debt. Ignore the apocalyptic forecasts of coming stock market crashes. Let’s just have a look at the data. And most of all, let’s not worry about what should be done, but think about what will be done.
    Rightly or wrongly, the Federal Reserve has a dual mandate. They are tasked with maximizing employment and maintaining price stability. Although many will debate what constitutes price stability, the Federal Reserve has interpreted it as a 2% inflation rate. You might think this absurd, so be it. It is what it is. Complaining will get you about as far as yelling at clouds.
    When Janet Yellen took the reins of the Federal Reserve, many pundits predicted a period of exceptionally easy monetary policy as she was widely viewed as a uber dove. But has her reputation proved deserved?

    This post was published at Zero Hedge on Jun 14, 2017.


  • Why the World’s Billionaire Investors Buy Precious Metals

    Why are these billionaires buying precious metals?
    Their cited reasons can basically be summed up with six categories: wealth preservation, store of value, inflation hedge, portfolio diversification, future upside, and investment fundamentals.
    What Billionaire Investors are Doing
    1. Lord Jacob Rothschild
    In late summer 2016, Rothschild announced changes to the RIT Partners portfolio because he was worried about very low interest rates, negative yields, and quantitative easing, saying they are part of the ‘greatest monetary experiment in monetary policy in the history of the world’.
    His solution? Buy gold to help preserve wealth, and as a store of value for the future.

    This post was published at GoldSeek on 11 June 2017.


  • Quantitative Easing Explained

    [Ed. note: This article was originally posted in November of 2010 – we have decided to republish it with updated charts, as it has proved to be very useful as a reference – the mechanics of QE are less well understood than they should be, and this article explains them in detail.]
    Printing Money
    We have noticed that lately, numerous attempts have been made to explain the mechanics of quantitative easing. They range from the truly funny as in this by now ‘viral’ You Tube video with two robotic teddy-bears discussing the Fed chairman’s qualifications (‘my plumber has a beard too’), to outright obfuscation such as the propagation of this ‘Bernanke explains he’s not printing money, it’s just an asset swap’ notion. This was apparently repeated by NY Fed president William Dudley on one occasion as well.
    However, ‘quantitative easing’ does amount to printing money, even if it does not involve the issuance of currency in the form of banknotes. Probably readers have heard the term ‘high-powered money’, which is often used as a description of the monetary base. Why is base money considered ‘high powered’? To explain this we must briefly consider how the central bank-led fractionally reserved banking cartel in a fiat money system actually works.
    Let us first take a step back and consider a free market. In a free market, a highly marketable good will be chosen as money. Historically, all sorts of goods have been used as money (from salt to cowry shells), but wherever gold and silver were available, the market eventually settled on these metals. It is obvious why: there was a preexisting strong demand for them, they are highly durable, divisible, fungible and scarce. In the case of gold, its scarcity furthermore ensures a high per unit value, making it feasible for large scale transactions.

    This post was published at Acting-Man on June 9, 2017.


  • Paul Singer: The Financial System Is Not Sound (Video)

    Billionaire investor Paul Singer says the financial system is no more sound than it was in 2008. In fact, he contends that in many cases, it is more leveraged than it was leading up to the 2008 crash.
    During an interview at the Bloomberg Invest New York summit, he pinned the blame squarely on what he calls extreme central bank monetary policy and growth suppressing government actions. And he warned it’s going to create a ‘ruckus’ when the bubble pops.
    I’m very concerned about where we are in terms of the financial system, the economy, the American economy, the global economy. After nine years of what I consider to be a distorted set of policies, completely oriented towards what I regard as monetary extremism – the quantitative easing that has put about $15 trillion dollars of bonds, and now stocks on the books of the developed country’s central banks, zero percent and negative interest rates; emergency monetary policy persisting for eight years after the emergency is over, combined with what I consider to be growth restrictive fiscal policies – regulatory, tax. So, I think it’s created a distorted recovery.’

    This post was published at Schiffgold on JUNE 9, 2017.


  • Debate: Will Shrinking the Fed’s Balance Sheet Crash the Markets?

    Following the 2008 financial crisis, the US Federal Reserve purchased trillions in toxic debt and US treasuries in order to restore confidence in the banking system.
    Academics referred to this multi-year process as quantitative easing or QE, but it was more commonly thought of as money printing, with many fearing that it would lead to hyperinflation, a collapse of the dollar, and skyrocketing gold prices.
    Though these worst-case scenarios failed to materialize, fears over hyperinflation have now been replaced by hyperdeflation (or, simply, a market crash) as the Fed engages in so-called ‘quantitative tightening,’ simultaneously raising rates while allowing their balance sheet to shrink back to normal, pre-crisis levels – something that may begin as early as this year.
    With the more popular bearish view getting louder in recent months and Financial Sense listeners emailing us in response, we decided to get Matthew Kerkhoff’s take on this debate since he correctly explained to our audience many years ago why QE wouldn’t lead to hyperinflation.
    Kerkhoff is a long-time contributor at Dow Theory Letters and the Chief Investment Strategist at Model Investing. Here’s what he had to say…

    This post was published at FinancialSense on 06/05/2017.


  • The Implications of Quantitative Tightening

    The secret’s out. The Fed wants to shrink the size of its balance sheet, and they want to begin the process sometime this year. What does this mean for investors? And what does it mean for key variables such as interest rates, inflation, and economic growth? Let’s find out.
    For those who may not recall, in the midst of the financial crisis, the Fed embarked on a bond-buying spree known as quantitative easing. This process involved the purchase of trillions of dollars’ worth of long-term Treasuries and mortgage-backed securities in an attempt to 1) suppress long-term rates, 2) inject liquidity into the financial system and 3) remove toxic assets from the balance sheets of public and private institutions.
    Quantitative easing was phased out in 2014 but has left the Federal Reserve holding a massive $4.5 trillion balance sheet. This portfolio of bonds has remained steady in recent years as the Fed continues to roll over maturing Treasuries and reinvest the principal payments from the mortgage-backed securities.
    In a recent commentary, the Fed has made it clear that it now wishes to begin the ‘unwinding’ of its balance sheet, effectively relinquishing most of these assets back into the marketplace. This process has been dubbed ‘quantitative tightening,’ and will represent another foray by the Federal Reserve into uncharted monetary waters.

    This post was published at FinancialSense on 05/31/2017.


  • Is Bitcoin Standing In For Gold?

    In a series of articles posted on http://www.paulcraigroberts.org, we have proven to our satisfaction that the prices of gold and silver are manipulated by the bullion banks acting as agents for the Federal Reserve.
    The bullion prices are manipulated down in order to protect the value of the US dollar from the extraordinary increase in supply resulting from the Federal Reserve’s quantitative easing (QE) and low interest rate policies.
    The Federal Reserve is able to protect the dollar’s exchange value vis-a-via the other reserve currencies – yen, euro, and UK pound – by having those central banks also create money in profusion with QE policies of their own.
    The impact of fiat money creation on bullion, however, must be controlled by price suppression. It is possible to suppress the prices of gold and silver, because bullion prices are established not in physical markets but in futures markets in which short-selling does not have to be covered and in which contracts are settled in cash, not in bullion.
    Since gold and silver shorts can be naked, future contracts in gold and silver can be printed in profusion, just as the Federal Reserve prints fiat currency in profusion, and dumped into the futures market. In other words, as the bullion futures market is a paper market, it is possible to create enormous quantities of paper gold that can suddenly be dumped in order to drive down prices. Everytime gold starts to move up, enormous quantities of future contracts are suddenly dumped, and the gold price is driven down. The same for silver.

    This post was published at Investment Research Dynamics on May 31, 2017.


  • Lance Roberts: This Market Is Like A Tanker Of Gasoline

    Lance Roberts, chief investment strategist of Clarity Financial and chief editor of Real Investment Advice has authored a number of impressive recent reports identifying potential failure points in today’s financial markets.
    In this week’s podcast, Lance explains how the massive flood of investment capital into passively-managed ETFs, along with record amounts of margin debt, has the potential to set the markets afire:
    Fundamentally, there’s nothing different in today’s markets because, at the end of the day, they are about evaluations, earnings — those types of things. Technically, the market is very different today because of quantitative easing, computerized trading etc.
    What we see are two things happening, in particular, that people should be paying attention to. One is that investors are herding into passively-managed ETFs now, which is creating a dislocation between the underlying realities of individual stocks and their prices, because the piling into ETFs is requiring stocks like Facebook, Amazon, and Google to be bought in much greater volumes than they otherwise would. And people are making an assumption that there will always a buyer for every seller in the market.


    This post was published at PeakProsperity on Tuesday, May 30, 2017.


  • The ECB and the Fed: Divergent Paths to Doom?

    Americans tend to focus on the Federal Reserve, but often forget the US central bank isn’t the only game in town.
    While Yellen and company hint they will try to continue pushing interest rates up, European Central Bank president Mario Draghi told European Parliament’s Economic and Monetary Affairs committee he intends to push ahead with his interventionist monetary policy. That means continued negative interest rates and quantitative easing for the EU.
    So, are the world’s two largest central banks taking divergent paths to doom?
    During Monday’s meeting, Draghi stressed the European bloc still needs ‘an extraordinary amount of monetary support’ in spite of its growing economic recovery. The ECB president said he’s’firmly convinced’ the bank should continue ‘support measures,’ including 60 billion of monthly bond purchases.
    Overall, we remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary for the present level of underutilized resources to be re-absorbed and for inflation to return to and durably stabilize around levels close to 2pc within a meaningful medium-term horizon.’

    This post was published at Schiffgold on MAY 30, 2017.


  • Interest Rates Up & Bonds Up?

    While the Fed may be raising rates, there is still a flight to quality underway that is giving a bid to US Treasury issues. Low Treasury yields may remain the norm even if the Federal Reserve raises rates again. At about 2.25%, 10-year yields have dropped to 2017 lows, even with the central bank signaling an imminent rate hike. Many still see the stock market crash and that also supplies a bit of an underlying bid right now. However, The Fed has also made it clear it will maintain a gradual approach to shrinking its massive bond portfolio thereby reversing the Quantitative Easing. We are in never-never-land where the Fed tightening will not yet have a direct impact upon the bonds on a one-for-one relationship.

    This post was published at Armstrong Economics on May 26, 2017.


  • Let Them Eat Cake

    All the signs of peak bubble conditions are back – levels comparable to 1929, 2000, and the 2008 financial crisis. Artificially low interest rates coupled with quantitative easing (QE) has brought back the same dynamics that caused previous bubbles to pop as a result of unsustainable extremes, with runaway debt levels up and down the line at center. Yes, the cake eaters have been running rampant since 2008, however even with low interest rates sponsoring the largest debt bubble in history, this madness can’t continue indefinitely. The debt bubble(s) will be popped at some point (soon?).
    This is evidenced in bank runs emerging in periphery economies – periphery economies that are coming closer to the core every day. As with the last such instances few saw coming at the time, the next unwinding will most assuredly arrive as well, this time likely exhibiting characteristics of previous episodes as well. Like the Canadian mortgage lender that recently crashed some 60% in one day, the single biggest surprise when they start will likely be the speed at which things can unravel, as cake eaters have become desensitized to such risk with the market interventions these past years.
    Certainly some of the cake eaters in Canada have had their bell’s rung in past few weeks – with many more such instances likely on the way later this year – ‘the bell toll’s for thee’.

    This post was published at GoldSeek on 15 May 2017.


  • The Coming Central Bank Crisis

    I have warned that whenever a government creates a solution to any crisis, that solution becomes the next crisis. This is what I have called the Paradox of Solution. The unfolding of the exit of the central banks from the Quantitative Easing monetary policy will become a much more serious threat to the financial markets than anyone suspects. The Federal Reserve has already exited and begun to raise rates while also announcing it will NOT be reinvesting the money when the government debt they bought expires. The Federal Reserve is already shortening their balance sheet. Bills of $426 billion will be due at the Fed in 2018, and again about $357 billion a year later. So the Fed will not repurchase that debt. The US economy is absorbing this because US dollars are effectively the only real reserve currency in the world right now.
    The real problem lies with the European Central Bank (ECB) and the Japanese central bank and when they exit their Quantitative Easing programs, their economies are not the reserve currency and lack a solid bid from international capital. The end of QE will lead to a sharp increase in yields on the bond markets, and thus the financing costs for the states will explode far more rapidly today than at any time in past history. It is also possible that other sectors of the financial system, such as the stock markets and the foreign exchange markets in peripheral economies to the USA, will be cast into turmoil experiencing great difficulties without the financial support of the central banks.

    This post was published at Armstrong Economics on May 15, 2017.


  • Italy’s Financial Regulator, in Bleak Prognosis, Threatens EU with Return to a ‘National Currency’

    Nerves are fraying in the corridors of power of the Eurozone’s third largest economy, Italy. It’s in the grip of a full-blown banking meltdown that has the potential to rip asunder the tenuous threads keeping the European project together.
    In his annual speech to the financial market, Giuseppe Vegas, the president of stock-market regulator CONSOB – a consummate insider – delivered a bleak prognosis. The ECB’s quantitative easing program has ‘reduced the pressure on countries, such as ours, which more than others needed to recover ground on competitiveness, stability and convergence.’
    But it hasn’t worked, he said. Despite trillions of euros worth of QE, Italy has continued to suffer a 30% loss in competitiveness compared to Germany during the last two decades. And now Italy must begin to prepare itself for the biggest nightmare of all: the gradual tightening of the ECB’s monetary policy.

    This post was published at Wolf Street on May 10, 2017.


  • Key Economic Data Continue To Show A Recession

    Goldman Sachs’ net income declined 42% from 2009 to 2016. How many of you reading this were aware of that fact? Yet GS’ stock price closed today 36% above its 2009 year-end closing price. See below for details.
    Auto sales in April declined again, with the Big Three domestic OEMs (GM, F and Chrysler) missing Wall St estimates by a country mile. The manipulated SAAR (seasonally adjusted annualize rate) metric put a thin layer of lipstick on the pig by showing a small gain in sales from March to April. But this is statistical sleight of hand. The year over year actuals for April don’t lie: GM -5.7%, F -7% and Chrysler -7.1%. What is unknown is to what extent the numbers reported as ‘sales’ were nothing more than cars being shipped from OEM factory floors to dealer inventory, where it will sit waiting for an end-user to take down a big subprime loan in order to use the car until it gets repossessed.
    The growth in loan origination to the key areas of the economy – real estate, general commercial business and the consumer – is plunging. This is due to lack of demand for new loans, not banks tightening credit. If anything, credit is getting ‘looser,’ especially for mortgages. Since the Fed’s quantitative easing and near-zero interest rate policy took hold of yields, bank interest income – the spread on loans earned by banks (net interest margin) – has been historically low. Loan origination fees have been one of the primary drivers of bank cash flow and income generation. Those four graphs above show that the loan origination ‘punch bowl’ is becoming empty.
    HOWEVER, the Fed’s tiny interest rate hikes are not the culprit. Loan origination growth is dropping like rock off a cliff because consumers largely are ‘tapped out’ of their capacity to assume more debt and, with corporate debt at all-time highs, business demand for loans is falling off quickly. The latter issue is being driven by a lack of new business expansion opportunities caused by a fall-off in consumer spending. If loan origination continues to fall off like this, and it likely will, bank earnings will plunge.

    This post was published at Investment Research Dynamics on May 3, 2017.


  • Federal Reserve & Elastic Money & NY Clearing House Certificates

    QUESTION: Why do you support the fed in what you call elastic money and not a gold standard?
    ANSWER: As usual, you listen to the nonsense about how the Fed is owned by the banks and is responsible for probably everything evil from creating wars to probably killing JFK. The entire use of ‘elastic money’ was not invented by the government or the Fed. It began in 1853 with a little known group to try to help in the middle of a crash for what you are advocating is precisely what Europe has done – impose austerity.
    The Panic of 1873 saw the government make a small gesture to try to calm the panic. They did the same thing as Quantitative Easing back then – Yes, not even that is new. The US Treasury injected cash by purchasing government bonds. It did NOTHING to help the economy. Why? When confidence crashes, people HOARD money and will not spend it if they fear the future. The cash they injected was hoarded by the banks just as it has been post-2007. Quantitative Easing in this manner NEVER produces inflation nor does it stimulate the economy.
    The banks got together to create their own ‘Elastic Money’ using the New York Clearing House. Failing to increase the money supply meant that the value of money in purchasing power rises and all assets decline. This is the hallmark of EVERY recession or depression. During the Panic of 1873, the national banks of New York pooled their cash and collateral into a common fund, and placed this in the hands of a trust committee at the New York Clearing House, which had been founded on October 4th, 1853. The New York Clearing House then issued loan certificates that were receivable at the Clearing-house against this collateral. These certificates were absorbed like cash and could be used to pay off debt balances. Ten million dollars’ worth of these certificates were issued at first, but the sum subsequently doubled. This Clearinghouse paper served its purpose admirably.

    This post was published at Armstrong Economics on May 2, 2017.


  • World Stock Markets Mixed, Awaiting ECB’s Draghi Press Conference

    This is a syndicated repost courtesy of Money Morning – We Make Investing Profitable. To view original, click here. Reposted with permission.
    (Kitco News) – Asian stock markets were mixed overnight, while European shares were mostly lower. U. S. stock indexes are headed toward slightly higher openings when the New York day session begins.
    Gold prices are slightly higher early Thursday as bulls are trying to recover from solid selling pressure seen most of this week. The generally upbeat trader and investor attitudes this week have been a significantly bearish element for the safe-haven metal.
    The European Central Bank holds its monthly monetary policy meeting today. No change in policy is expected from the ECB, but bank president Mario Draghi’s press conference will be closely monitored for clues on upcoming ECB policy moves.
    Sweden’s central bank on Thursday extended its quantitative easing program but did trim down its bond-buying plans.

    This post was published at Wall Street Examiner by Jim Wyckoff ‘ April 27, 2017.


  • The End of Quantitative Easing – Perhaps Now It Will Be Inflationary?

    One of the greatest monetary experiments in financial history has been the global central bank buying of government debt. This has been touted as a form of ‘money printing’ that was supposed to produce hyperinflation. That never materialized as predicted by the perpetual pessimists. Nevertheless, the total amount of Quantitative Easing (QE) adding up the balance sheets of the Federal Reserve (Fed), the European Central Bank (ECB) and Bank of Japan (BOJ) is now around $13.5 trillion dollars, which by itself is a sum greater than that of China’s economy or the entire Eurozone for that matter.
    ***
    If QE failed to produce inflation, then ending QE may actually produce the inflation people previously expected. Where’s the strange logic in that one? Well you see, it really does not matter how much money you print, if it never makes it into the economy, it will not be inflationary. Additionally, even if it makes it into the economy and the people hoard for a rainy day, it still will not be inflationary.

    This post was published at Armstrong Economics on Apr 20, 2017.


  • Chaos Coming To A Market Near You This Summer

    This post Chaos Coming To A Market Near You This Summer appeared first on Daily Reckoning.
    [This post is from Lee Adler. To find out more about his work – visit Wall Street Examiner by clicking HERE.]
    This month the Fed is adding $23.4 billion in cash to Primary Dealer Trading Accounts in the period April 12-20. This is slightly more than the March addition of $21.9 billion, the smallest add since January 2016. It was a sharp decline from February’s $41.6 billion.
    You may have thought Quantitative Easing (QE) ended in late 2014, and it did, but the Federal Reserve has continued to add cash to the financial markets every month. It does so via the purchases of mortgage backed securities (MBS). It calls them ‘replacement purchases.’
    The Fed and Mortgage Backed Securities
    The Fed is the bank for the banks, i.e. the central bank. It has resolved since 2009 to force trillions in excess cash into the banking system and make sure that that money stays in the system. It has also resolved to make sure that the amount of the cash in the system does not shrink. It does that each month via its program of MBS replacement purchases.
    The Primary Dealers are selected by the Fed for the privilege of trading directly with the Fed in the execution of monetary policy. This is essentially the only means by which monetary policy is transmitted directly to the securities markets, and then indirectly into the US and world economies. The only means which the Fed uses in the transmission and execution of monetary policy is via securities trades with the Primary Dealers.

    This post was published at Wall Street Examiner on April 18, 2017.


  • 15/4/17: Unconventional monetary policies: a warning

    Just as the Fed (and now with some grumbling on the horizon, possibly soon, ECB) tightens the rates, the legacy of the monetary adventurism that swept across both advanced and developing economies since 2007-2008 remains a towering rock, hard to climb, impossible to shift.
    Back in July last year, Claudio Borio, of the BIS, with a co-author Anna Zabai authored a paper titled ‘Unconventional monetary policies: a re-appraisal’ that attempts to gauge at least one slope of the monetarist mountain.
    In it, the authors ‘explore the effectiveness and balance of benefits and costs of so-called ‘unconventional’ monetary policy measures extensively implemented in the wake of the financial crisis: balance sheet policies (commonly termed ‘quantitative easing’), forward guidance and negative policy rates’.

    This post was published at True Economics on Saturday, April 15, 2017.