The Keynesian elite gathered in Davos Switzerland this past week to pontificate
on global economic issues and to strategize the engineering of The Fourth Industrial
Revolution. This new so called "revolution" includes a discussion on the future
of Artificial Intelligence. Judging by the comments coming from most of the
list of attendees, it seems obvious the intelligence on display was indeed
faux. But the most important take away from thisvenue was that central bankers
have made it clear to the markets that the level and duration of quantitative
counterfeiting knows no bounds.
European Central Bank (ECB) President, Mario Draghi, used the platform to
assure investors he'll do whatever further is needed to reach his absurd inflation
goal: "We've plenty of instruments, said Draghi." "We have the determination,
and the willingness and the capacity of the Governing Council, to act and deploy
these instruments."
Central bankers love to use words like instruments and tools to describe the
methods and strategies available to them because it makes what they actually
do appear less primitive. But truth be told, the only instrument or tool central
banks have is the impious power to create money and credit by decree.
Not to be outdone by the Europeans, Japan's chief money printer, Haruhiko
Kuroda, appeared downright giddy from monetary intoxication when discussing
what he refers to as his
QQE--Quantitative and Qualitative Monetary Easing program. As if adding that
additional "Q" somehow makes it more palatable and effective than the generic
form of Quantitative Easing.
When asked by a reporter if the Bank of Japan (BOJ) had more room to ease,
Kuroda glibly chuckled that the BOJ has "only" purchased 33% of all existing
Government Bonds and conveyed the willingness to monetize every available sovereign
debt note issued by the insolvent government of Japan.
And since Mr. Kuroda thinks destroying your nation's currency is funny, he
certainly has a lot more than Mr. Draghi to laugh about. The ECB's balance
sheet stands at roughly 25% of the Eurozone's Gross Domestic Product; while
the BOJ boasts a whopping 78% of Japan's GDP.
In fact, it wasn't long after Davos that Kuroda stepped up his assault on
the yen by announcing Friday that the deposit rate will move 0.1% into negative
territory starting February 16th. Apparently, printing 80 trillion yen a year
isn't wrecking the currency fast enough for the BOJ.
As of Jan 20, 2016 the BOJ's balance sheet had risen to 389.6 trillion yen.
At the start of QQE in April of 2013 its balance sheet was just 174.7 trillion
yen. For those keeping track at home that is a 123% increase in the monetary
base...and they are just getting started. All this makes you wonder if the
additional "Q" really stands for central bank "Quackery".
Mr. Kuroda averred he has two thirds more JGBs to buy before he runs out of
sovereign debt. But once all JGBs are owned by the BOJ the money printing won't
stop. The BOJ President said he will not balk at buying much more of the so
called "lesser quality assets" such as equity ETFs and Junk bonds. But buying
assets that have a lower quality than a 0.1%, 10-year Japanese bond is a difficult
feat to accomplish! Especially in light of the fact that the nation has a debt
to GDP ratio of 250% and has an inflation-obsessed central bank.
Turning back to Europe's Chief Counterfeiter Mario Draghi, he has been buying
60 billion euros a month worth of European sovereign debt and has being do
so for quite some time. The total goal had been to add 1.2 trillion euros ($1.4
t) to the ECB's balance sheet; taking the total up to 3.3 trillion euros. However,
that 60 billion euro per month QE program was extended until March 2017 less
than 60 days ago. But now, less than two months from expanding the program,
he is still not satisfied with rate of euro dilution and told the markets he's
ready to do more!
It is becoming obvious to the worldwide investment community that these central
bankers will not quit printing money until inflation becomes an intrinsic and
sustainable aspect of the global economy.
But the last seven years has clearly taught us that QE is great for asset
prices but is ineffectual at providing viable economic growth. We don't have
to look any further than Japan for this proof. In nominal terms Japan's GDP
is up a measly 5.5% since the currency wrecking regime known as Abenomics took
control in December of 2012. Meanwhile, the Nikkei Dow has surged over 100%
during that same timeframe.
It is also becoming obvious to the equity markets that there is no escape
from this monetary madness. After all, is there anyone who really believes
that Kuroda can finally stop printing money when inflation eventually hits
his arbitrary 2% target?
The central bank already owns over one third of JGBs and over half of all
ETFs. What will happen to the Japanese stock market once the BOJ announces
it will begin winding down ETF purchases; and has started down the path to
becoming a seller?
And won't the bond market tank after Kuroda proclaims that its bid for JGBs
will be removed? The Ten-year Note must soar from 0.1%, where it is today,
to at least where the 2% inflation target now stands. Then throw in a few hundred
more basis points for the fact that nation's tax base cannot service its debt
at the higher interest rate.
Therefore, since the obvious result would be a complete collapse in equity
and bond prices, which would lead to an unprecedented economic meltdown, the
BOJ has unwittingly become trapped into an endless QQE program.
Indeed, the entire global real estate, equity and bond markets have become
completely addicted to perpetual and ever increasing quantities of QE and ZIRP.
It is no accident that the S&P 500 began its topping process once QE ended
in October 2014. The US equity market also has become reliant on ZIRP and QE
to move higher.
Asset prices and economies have become wards of central banks and their endless
ability to increase the rate of new money creation. Therefore, since the global
elites have placed all their faith in the fiat confetti spewed out by central
banks, investors would be wise to increase their exposure to the only genuine
form of money there ever was...gold.
