Monday, November 17, 2014

Nomi Prins: QE Isn't Dying, It's Morphing

Nomi Prins is one of the best indendent thinkers out there these days. Here is some background bio information on her. Her experience in banking at Goldman Sachs, Chase, and Lehman Brothers qualifies her as someone who has worked inside the system. In this article on her blog, she discusses how QE is not really ending. She shows how the big banks are simply stepping in to take over QE from the Fed. Below are a few quotes from her article. Please read the entire article for full context.


"A funny thing happened on the way to the ‘end’ of the multi-trillion dollar bond buying program known as QE - the Fed chronicles. Aside from the shift to a globalization of QE via the European Central Bank (ECB) and Bank of Japan (BOJ) as I wrote about earlier, what lingers in the air of “post-taper” time is an absence of absence. For QE is not over. Instead, in the United States, the process has simply morphed from being predominantly executed by the Federal Reserve (Fed) to being executed by its major private bank members. Fed Chair, Janet Yellen, has failed to point this out in any of her speeches about the labor force, inflation, or inequality."
. . . . . 

"Banks only started buying US Treasuries in earnest when the Fed announced its tapering plans. Thus, not only are they participants in the ZIRP game as recipients of cheap money, they are complicit in effecting monetary policy. As the data analyzed so expertly by Bill Moreland at makes clear, there has been no taper.  Thus, the publicized reason for tapering – better job and economic growth – is also bogus."

"During the third quarter, Wells Fargo and Bank of America matched Fed purchases of US Treasuries, keeping the total amount of US Treasuries in QE land neutral. With such orchestration to keep rates down and the prices of US Treasury securities up, all the talk about whether the labor force is strengthening or inflation exists or not is mere show. Banks haven’t even propped up the labor market in their own industry. They chopped 11,400 jobs last quarter. In the past two years, they cut 57,236 jobs."

"No sucessful candidate in either political party mentioned any of this during the mid-term elections. Yet, our political-financial system has gone from the dysfunctional to the failed to the surreal. Speculation, once left to individuals and investors, is now federally sponsored, subsidized and institutionalized.  When this sham finally buckles and the next shoe falls and rates do eventually rise, the stock market will tank, liquidity will die, and the broader economy will plunge into a worse Depression than before. We are not there yet because of these coordinated moves and the political force behind them. But we are on a precarious path to that inevitability." 
My added comments: 

This is a very thought provoking and well written article. It also talks about something we noted here on this blog. QE has simply been moved to new players. Japan is taking the baton from the US Fed and will be flooding world stock markets to help keep those from falling. This article also points out how the big US banks will now step in to make sure US bonds keep being purchased to keep interest rates low. This allows the Fed to act as if it has successfully solved the financial crisis and keeps markets calm.

All of these manuevers are why we do not try to predict any timing as to when a new crisis might emerge here on this blog. Those who have tried to predict the timing have learned that there are many ways to keep the present system going for much longer than they thought was possible. And this may continue for quite awhile longer. No one knows the future for sure.

We think a better approach is to stay informed (something we try to help with here). Make reasonable plans and preparations for another crisis so as to be ready when it arrives. If it does not arrive, be happy. That's a good thing. If there is another crisis, you will have made reasonable preparations. Having done that, don't spend time worrying about everything. Don't allow fear to run your life. Stay informed, make reasonable preparations, enjoy life, and lend a helping hand to a neighbor when you can. We will try to follow events here as change unfolds, whatever time frame is involved.

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