Imf's Vinals Says Central Banks May Have To Be "market Makers"

[interestrateripoff]

http://uk.reuters.com/article/2015/06/18/imf-markets-vinals-idUKL5N0Z43QT20150618?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews

Central banks may need to become "market makers of last resort" if there is not enough liquidity during volatile sell-offs, a senior International Monetary Fund official said on Thursday.

Regulators worry that when interest rates begin rising from their prolonged low levels there will be a stampede for the exits by bond investors and that markets won't have the liquidity or capacity to deal with it smoothly.

The prospect that the Federal Reserve may start raising rates later this year has already prompted "taper tantrums" or severe volatility in global financial markets.

Jose Vinals, director of the IMF's capital markets department, said market liquidity has shrunk as capital requirements on banks have increased but that there was no simple relationship between the two.

Central banks buying bonds to conduct unprecedented stimulus programmes over the last three years -- most recently the European Central Bank -- have also been blamed for sucking volume out of the market, making it less liquid.

Vinals said it was unclear whether markets were simply more volatile or whether there were systemic consequences, but it would take time to find a solution,

"The time it takes for the global regulatory community and central banking world to find a solution this time may be longer than the time where one episode of big illiquidity happens," Vinals told a meeting of the International Organization of Securities Commission (IOSCO) in London.

"Then the question is what to do. In my view the only thing that can be done at that time is that central banks should become again market makers of last resort."

How did the central bankers become the market makers of last resort the last time? They simply created a load of money and simply gave it to the rich?

[spyguy]

Then investments banks.

Then business operations.

Then they can decide on what colour I paint my walls and which way to brush my fringe.

[zugzwang]

Hell, yeah! Why don't they just put their own faces on the money too?

[onlyme2]

Being market manipulators is not enough.

[Errol]

They already are market makers. What does he mean, 'may'?

[TheCountOfNowhere]

The central banks are part of the problem, not the solution.

They'll want more printed money.

more for their bankers friends.

[TheCountOfNowhere]

Then investments banks.

Then business operations.

Then they can decide on what colour I paint my walls and which way to brush my fringe.

That very thought disturbs me, you have a fringe!!!

[Venger]

So they basically want to continue to expanding and loading the national balance sheets/ECB balance sheets, to maintain values at price levels that suit certain VI - not younger generations who don't inherit/have to try and make it in life on their own.

They want to become the market, continuing Western new policies since 2008-09/QE. Less liquidity = lower prices/values set by those who still have some liquidity. Overriding that by liquidity galore central banks to chosen ones.

You're either against it and refusing to participate, waiting for hpc, - or you're fully exposed and doubling down to the paradise of treble-lottery winning asset prices on a river of red ink. Bit like older winners such as Long buying a BTL the other day - despite having had a multi-decade life of 'win'.. cheap house bought years ago.. promotions and pay rises to the top. Or PricedOutNative's 'smart-people' assets-at-any-sillier-higher-price, to keep ensuring younger generations have no look-in on the market, with cuddles from central bankers to maintain super high prices for their super-egos.

Central banks don't have magic powers. They can create liquidity by creating debt, but that isn't the same as creating capital. Whenever a central bank monitizes an asset by buying it (printing press money) - it creates a liability. Running the printing presses at a higher speed destroys more wealth than it creates. Only the market can create capital by valuing assets above liabilities.

This:

Nail on the head, that's why a number of smart people I know have bought property, they don't care that they rental income is small, they just want to save their wealth from the coming wipe out of cash, bonds and equities...

**** off.

Political authorities will surely attempt to lighten debt loads by depreciating the value of money. But the market will understand this even better than the politicians. A hunter with a visible snare catches few rabbits. Creditors will seek to stay one step ahead of the authorities, to avoid being tagged with the losses through inflation or currency depreciation.

The lesson of September 1992 is a re-affirmation of a central theme: markets are more powerful than governments. The European Exchange Rate Mechanism cracked apart because the Bank Of England was no match for George Soros. Even with tens of billions of Deutsch marks to spend defending an artificially high value of the pound, the British government was obliged by the market to beat a humiliating retreat. Given similar circumstances, it would happen again.

The major economic drama will be the struggle between the market and government over the liquidation of debt. Political authorities will prefer to wipe away debt surreptitiously through inflation. But to inflate away bad debts also means inflating away good credits.

Market participants will seek to preserve the value of their assets denominated in money. To the extent that they succeed, they will make it harder to repay excessive debt in cheap money, and thus make the system more vulnerable to overt default and deflation.

As monetary policy is loosened, in increasingly desperate efforts to reliquify the economy, the market may force a deflationary response. There is a limit to everything, including the good credit of governments. When theirs is exhausted, even governments of the richest industrial countries will face the dilemma Sweden answered with 500 percent interest rates and deep cuts in government spending. When it appears that authorities are most determined to inflate depression away that very perception could put the economy on the verge of again slipping into the deflationary vortex.

What seems to be lost in the monetary debate is that this persistent drop in inflation defies the primary purpose of quantitative easing, which is designed to lower real interest rates. In fact, with nominal yields rising in the face of falling inflation and thus raising real interest rates, the economy is now closer to a deflationary death spiral than at any time during the Fed’s/BoJ/BoEs/ECBs/ unprecedented policy designed to prevent just such an outcome.

Aggregate demand in the real economy has in fact met the limit of monetary policy, rendering QE’s impact ineffective and obsolete.

[evetsm]

So they basically want to continue to expanding and loading the national balance sheets/ECB balance sheets, to maintain values at price levels that suit certain VI - not younger generations who don't inherit/have to try and make it in life on their own.02

02

They want to become the market, continuing Western new policies since 2008-09/QE.02 Less liquidity = lower prices/values set by those who still have some liquidity.02 Overriding that by liquidity galore central banks to chosen ones.

02

You're either against it and refusing to participate, waiting for hpc, - or you're fully exposed and doubling down to the paradise of treble-lottery winning asset prices on a river of red ink.02 Bit like older winners such as Long buying a BTL the other day - despite having had a multi-decade life of 'win'.. cheap house bought years ago.. promotions and pay rises to the top.02 Or PricedOutNative's 'smart-people' assets-at-any-sillier-higher-price, to keep ensuring younger generations have no look-in on the market, with cuddles from central bankers to maintain super high prices for their super-egos.

02

02

02

this man predicted the deflationary death spiral caused by QE, leading to eventual utter collapse.

http://goldsurvivalguide.co.nz/prof-fekete-on-hyper-deflation/

there is not much so far that Fekete has been wrong about. A hyperdeflation collapse will be hell

Edited June 19, 2015 by evetsm

[Venger]

this man predicted the deflationary death spiral caused by QE, leading to eventual utter collapse.

http://goldsurvivalguide.co.nz/prof-fekete-on-hyper-deflation/

there is not much so far that Fekete has been wrong about. A hyperdeflation collapse will be hell

Well it's no fun (hell) being on the opposite (renter-saver) side of these house prices either, and that was before year-on-year-on-year HPI+++ stimulus policies at every pause for more HPI.

[VeryMeanReversion]

"central banks should become again market makers of last resort."

Which of course means they will be buyers only, not short-sellers when it looks a bit toppy.

Maybe they should start their own central investment bank and front-run themselves!

[pipllman]

the greek protestors outside the parliament really are outside the wrong building aren't they?

[Assume The Opposite]

I was under the impression that the Fed is still doing covert QE?

[TheCountOfNowhere]

the greek protestors outside the parliament really are outside the wrong building aren't they?

Never a truer word said on this site.