Posted on 10/30/2014 1:09:02 AM PDT by dennisw
So now that "best Keynesian practices" are out of the window, and everyone has once again turned Austrian, and only the "flow of money" (either inside or outside) matters, the question is how much do central banks need to inject to keep the stock market from crashing, let alone continuing to levitate. Luckily, Citi's Matt King has just done the math, and the answer is...
Here is his answer:
We think the markets’ weakness owes more to an almost belated reaction to a temporary lull in central bank stimulus than it does to any reduction in the effect of that stimulus in propping up asset prices. Figure 5 shows the rolling 3m combined liquidity injection by the Fed, the ECB, the BoE and the BoJ, plotted against the rolling 3m change in spreads. While the relationship is not perfect – liquidity flows across asset classes and across borders, and there are announcement and confidence effects in addition to the straightforward impact on net supply – it is this, not fundamentals, which we would argue has been the major driver of markets for the past few years (Figure 6 shows the same series plotted against global equities).
In case anyone missed it, and in case there is still any debate about this issue which we first explicitly stated nearly 6 years ago and were widely mocked by the all too serious intelligentsia, here is the key sentence again:
"it's the liquidity injections, not fundamentals, which we would argue has been the major driver of markets for the past few years."
And with that piece of New Normal trivia behind us, we continue:
For over a year now, central banks have quietly being reducing their support. As Figure 7 shows, much of this is down to the Fed, but the contraction in the ECB’s balance sheet has also been significant. Seen from this perspective, a negative reaction in markets was long overdue: very roughly, the charts suggest that zero stimulus would be consistent with 50bp widening in investment grade, or a little over a ten percent quarterly drop in equities. Put differently, it takes around $200bn per quarter just to keep markets from selling off.
It’s not costing central banks a penny. It is costing every tax paying citizen. It’s just one big democrapic and GOPe party enslavement of tax paying citizens. Don’t forget the other big beneficiary.. the Congressional bodies that write the laws and earn financial rewards for the chains they place on everyone but themselves.
Inflation is poison that attacks the bloodstream of the economy. Other than Rand Paul, I doubt there is another elected politician who opposes Central Banking.
and if an ebola pandemic shut down the economy, it would give the fed a graceful out (didn’t collapse because of federal reserve abuses, but the plague, and the fed walks away unscathed)
And when the crash comes its going to be a doozy.
” Every additional dollar created out of thin area robs value from every other dollar already in existence. Creating new money is the definition of inflation and not a rising price level.”
True - so if you’re an investor (or someone wanting to maintain the buying power of your assets) what does that tell you?
What it tells me is diversify your assets. Anyone who keeps all their assets in dollars is foolish.
In other words:
If we don’t steal at least $200 Billion Dollars of Value from the existing monetary units of measurement every quarter, All those Government Pension Funds invested in the Stock Market will be worthless.
They are passing the money round and round. When it stops....crash.
What can not go on forever, won’t. They’re just making the crash and disaster bigger every day.
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