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QE, Its Shit or Bust Now

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If you are wondering when Central Banker or politicians will ever end QE, think again. Since Bernanke said on 22 May that the Fed may taper back QE. Within a few weeks over $2.5 trillion has being wiped from the value of equities across the globe. Despite what has been said about trying to get a recovery going, the stock markets will be kept propped up as long as the global ponzi debt scheme can be fed because the alternative to them is unthinkable. Unfortunately for the rest of us the alternative will one day become a reality and that’s a mathematical certainty. All fiat currencies end in disaster and this time is no different.

printingThe Federal Open Market Committee meets next week after the Bank of Japan this week left its lending program unchanged. Global stocks have plunged 5.2 percent from their May 21 peak this year on speculation the Fed may ease stimulus.

“People are still trying to assess the prospects, likelihood, and timing of tapering from the Federal Reserve,” Chris Green, an Auckland-based strategist at First NZ Capital Ltd., a brokerage and wealth management firm, said. “Markets want stability in the economy but they also want unlimited stimulus. The two can’t continue to exist together.”

Trillions Erased

More than $2.5 trillion has been erased from the value of global equities since Federal Reserve Chairman Ben S. Bernanke said May 22 the Fed could scale back stimulus efforts should employment show “sustainable improvement.”

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To summarize: after three years of the most aggressive deficit spending and monetary ease in human history, the global economy is…slowing down. Meanwhile, central bankers, finally realizing that their random lever-pulling has created asset bubbles without any actual new wealth, and that the likely (very ugly) aftermath might make them unpopular in retirement, are trying to untangle the mess they’ve created.

But even hinting that they might, at some point in the distant future, consider planning to discuss a timetable for eventually gradually phasing in a slightly lower heroin dosage has sent the global financial junkie into a fit of anticipatory withdrawal. Like any good enabler, the bankers will of course respond that they were misquoted and that easy money is now a permanent feature of the modern world. So relax, everything’s going to be okay. Go back to your derivatives trading, and have a little more leverage on us.

Now, there’s no way to know if this is that time, but a time is coming when things are so complex and the moving parts are moving so quickly and erratically that no policy response will make a difference. When that time finally comes it will look a lot like tonight’s Asian markets.

Source: Dollar Collapse

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UK: Triple Dip Recession To Trigger More QE

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A number of weeks ago Max Keiser made the statement on the BBCs program that “the UK economy is screwed“. Certainly the signs are not good and George Osbourne does not inspire confidence. After the losing its AAA status and signs of moving back into a triple dip recession it looks like the only solution as usual is to crank up the printing presses.
The Bank of England will be under pressure to unleash further emergency measures this week amid signs the UK is on course for an unprecedented triple-dip recession.

A shock fall in manufacturing activity in February helped shorten odds that the Bank’s nine-strong Monetary Policy Committee (MPC) will push the button on a further £25 billion of quantitative easing (QE) – also known as money printing – when they meet on Wednesday and Thursday.

Last month’s MPC minutes saw governor Sir Mervyn King and Paul Fisher join previously lone voice David Miles in calls to restart the printing presses.

Interest rates, which have remained unchanged at 0.5% for four years, will also be in the spotlight after Bank of England deputy governor Paul Tucker told MPs on the Treasury Committee that he had put negative interest rates up for consideration.

While he admitted it was an idea that needed to be thought through carefully, the Bank is expected to look for other measures to kick-start the UK economy, which has weaved in and out of recession since the 2008 banking crisis.

More QE looks to be the inevitable solution.

Alan Clarke, UK and eurozone economist at Scotiabank, said: “The recent noises from MPC members suggest that the MPC want to do something, but it is not yet clear what. The default policy tool has tended to be more QE and a £25 billion expansion at this week’s meeting seems to be the most likely outcome.”

But Howard Archer, chief UK and European economist at IHS Global, said he thought the Bank would hold fire on more QE at its March meeting, partly because the recent sharp weakening of the pound was stimulative in itself.

He said: “Furthermore, there is a danger that doing further QE at a time when sterling is already under serious downward pressure could cause the pound to fall too far too fast which would be both destabilising and perhaps over-stoke inflation risks.”

On Friday the pound dropped below 1.50 US dollars for the first time in more than two-and-a-half years.

Philip Shaw, chief economist at Investec, said that while he thought it was likely the MPC would keep policy on hold, the weak figures gave the case for further QE “a certain degree of extra momentum”.

Source: Irish Independent

UK: Bank of England Has New Money Printing Trick

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You can always count on bankers to find new ways of bending accounting rules but in this case the Bank of England is now able to supply the UK Government with £35bn via the back door at the same time it has announced a halt to QE.

 

 

 

So now we know why the Bank of England’s Monetary Policy Committee called a halt to more Quantitative Easing this week – it’s because the Chancellor and the Governor of the Bank of England have concocted a backdoor way of doing the same thing.

The latest little (actually quite big at a tidy £35bn) money printing wheeze comes about as close to outright monetising of government spending as it is possible for the Bank of England to go without simply creating the money and handing it by the lorry load to the Treasury, a la Weimar.

What the Treasury has decided to do is take the accumulated interest payments on the stock of government debt the Bank of England has bought under quantitative easing, and credit it to the Government’s books rather than the Bank of England’s. The total is £35bn, of which the government intends to take £11bn this financial year and £24bn next.

This obviously helps the deficit in these two years quite a lot, creating space, should the Chancellor wish to take it, to ease back a little on the fiscal squeeze. For instance, he might choose to take the shadow Chancellor’s advice and further delay a scheduled increase in fuel duties. It also makes it easier for Mr Osborne to meet his fiscal mandate of eliminating the structural deficit within five years. Even the supplementary target of falling debt as a percentage of GDP by the end of the parliament – the one which City forecasters now widely believe Osborne will miss without further austerity – is marginally benefited by the latest piece of sleight of hand. It’s as if Osborne has died and been reborn as Gordon Brown, who famously manipulated his own fiscal rules to destruction.

The Government excuses its actions by saying that it is only bringing itself into line with practice in Japan and the US, the other major economies to be practicing substantial QE right now. It might also be argued that to the extent the European Central Bank indulges in bond purchases, it practices something quite similar too.

In any case, you might reasonably think that it doesn’t really matter how the government accounts for the interest on the Bank’s stock of gilts. Since the Bank of England is 100pc owned by the Treasury, the government has in essence only been paying interest to itself, so why not just stop the charade and save the money?

Wrong, wrong, wrong. The justification for keeping the interest is that it creates a buffer to fund expected losses on the gilts when the Bank of England comes to unwind its quantitative easing programme. These losses are now going to have to be met by the government directly at some stage in the future. Alternatively, the government could simply ignore them or write-them off. The Government is transferring the losses from today until tomorrow. The thin line which separates monetary from fiscal policy is being crossed in a way which substantially undermines the Bank of England’s claim to independence.

Source: Telegraph

Bank of England to Engage in Further QE

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The Bank of England are likely to engage in further QE in February after the current round finishes unless the economy improves (Whats the chances of that?) according to Martin Weale, a member of the Bank’s Monetary Policy Committee. Presently inflation is running at 5% but the Bank has forecast a sharp fall in 2012 and said it is more likely to be below the 2pc target than above it by 2013/14.

The Bank of England restarted QE in October, when it was clear that the eurozone debt crisis would hit UK growth. It announced a further £75bn, on top of the £200bn of QE between March 2009 and January 2010.

 

source The Telegraph.

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