Central banks QEase on down the road

Most equity markets across the globe moved higher on very low volume as the Bank of England announced its “kitchen sink” response to Brexit.

The theory being that despite a nil growth global economic forecast, central banks will print their way to economic expansion.

The markets don’t have to believe that, but the banks do have to put the added liquidity they receive as a result of the QE into the markets.

That in a nutshell is why we are seeing all-time highs on the Dow and S&P. The trickle down for Main St. is perhaps your 401(k) is a little healthier.

Don’t attempt to get a business loan or a mortgage at these low rates, the banks can’t put that additional liquidity to work and risk defaults.

The large Wall Street banks don’t have the balance sheet to take on more risk, hence the injection of capital through the QE operations.

Don’t think for a second that the Federal Reserve is not continuing its liquidity injections into the banks.

As the paper it bought in 2009-2013 rolls over and matures the Fed is re-injecting the principle bank into the banks to buy more of the toxic paper, that should be trading at $0.05 at par to further bolster the troubles banks.

By some estimates the Fed could be rolling over $15 billion a month into new toxic paper. This is QE by any other name.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s