Central Banks Ready To Panic — Again / Deflation Is Winning – Beware!

[interestrateripoff]

http://dollarcollapse.com/money-bubble/central-banks-preparing-to-panic-again/

Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. Raw materials are tanking as capital pours out of the most heavily-impacted countries and into anything that looks like a reasonable hiding place. So the dollar is up, Swiss and German bond yields are negative, and fine art is through the roof.

Now emerging-market turmoil is spreading to the developed world and the conventional wisdom is shifting from a future of gradual interest rate normalization amid a return to steady growth, to zero or negative rates as far as the eye can see. Here’s a representative take from Bloomberg:

Cheap Money Is Here to Stay

http://www.bloombergview.com/articles/2015-07-23/ultralow-interest-rates-are-here-to-stay' rel="external nofollow">

For decades, central banks lorded over markets. Traders quivered at the omnipotence of monetary authorities — their every move, utterance and wink a reason to scurry for safe havens or an opportunity to score huge profits. Now, though, markets are the ones doing the bullying.

The Fed’s Countdown

Take New Zealand and Australia. Yesterday, the Reserve Bank of New Zealand slashed borrowing costs for the second time in six weeks even as housing prices continue to skyrocket. A day earlier, its counterpart across the Tasman Sea (already wrestling with an even bigger property bubble of its own) said a third cut this year is “on the table.”

Just one year ago, it seemed unthinkable that officials in Wellington and Sydney, more typically known for their hawkishness and stubborn independence, would join the global race toward zero. But with commodity prices sliding, China slowing and governments reluctant to adopt bold reforms, jittery markets are demanding ever-bigger gestures from central banks. Even those presiding over stable growth feel the need to placate hedge funds, lest asset markets falter. When this dynamic overtakes countries such as New Zealand (growing 2.6 percent) and Australia (2.3 percent), it’s hard not to conclude that ultralow rates will be the global norm for a long, long time.

Indeed, the major monetary powers that are easing — Europe, Japan, Australia and New Zealand — have all suggested rates may stay low almost indefinitely. Those angling to return to normalcy, meanwhile — the Federal Reserve and Bank of England — are pledging to move very slowly. Even nations with rising inflation problems, like India, are hinting at more stimulus.

“As interest rates continue to fall across most of the globe, central banks are also united in their main message: Once rates have come down, they’re likely to stay down,” says Simon Grose-Hodge of LGT Bank. “And when they finally do tighten, the ‘normal’ rate is going to be a lot lower than it used to be.”

Could the People’s Bank of China be next? “With underlying GDP growth still looking weak, more monetary policy moves are likely,” says Adam Slater of Oxford Economics. “And China may even face the prospect of short-term rates dropping towards the zero lower bound.”

..........

[interestrateripoff]

http://www.peakprosperity.com/blog/93665/deflation-winning-%E2%80%93-beware

Deflation is back on the front burner and it's going to destroy all of the careful central planning and related market manipulation of the past 6 years.

Clear signs from the periphery indicate that a destructive deflationary pulse has been unleashed. Tanking commodity prices are confirming that idea.

Whole groups of enterprises involved in mining and energy are about to be destroyed. And the commodity-heavy nations of Canada, Australia and Brazil are in for a very rough ride.

Whether the central banks can keep all of their carefully-propped equity and bond markets elevated throughout the next part of the cycle remains to be seen. We know they will try very hard. They certainly are increasingly willing to use any all tools at their disposal to keep the status quo going for as long as possible.

Whether it’s the People’s Bank of China stepping in to the market to buy 10% stakes in major Chinese corporations in a matter of weeks, the Bank Of Japan becoming the majority owner of key ETFs in the Japanese markets, or the Swiss National Bank purchasing $100 billion of various global equities, we see the same desperation. Equity prices are being propped, jammed and extended higher and higher without regard to risk or repurcussions.

It makes us wonder: Why haven’t humans ever thought to print their way to prosperity before?

Well, that’s the problem. They have.

And it has always ended up disastrously. History shows that the closest thing that economics has to an inviolable law is: There’s no such thing as a free lunch.

Sadly, all of our decision-makers are trying their hardest to ignore that truth.

First, The Fall….

So how will all of this progress from here?

We’ve always liked the Ka-Poom! theory by Erik Janzen which we explained previously like this:

One of the models of the future that I favor is the

Ka-Poom theory

put out by Erik Janszen of iTulip.com back in 1999.

Basically it states that the end of a bubble era begins with a sharp deflationary event (the ‘Ka’ part of the title), but ends in a highly inflationary blow-off, (the ‘Poom’).

It’s a one-two punch. Down then up.

The reason you get the deflationary portion is simply because bubbles always burst. They are seeking a pin from the moment they are born.

The logic for the inflationary secondary reaction is that the central banks always respond to deflation with more money printing. Ironically, this is a doomed attempt to stem the damage caused by their prior money printing efforts.

They never learn.

So that’s what we’re looking for here at Peak Prosperity: a deflationary crunch savage enough to scare the central banks into opening the monetary spigots even wider. But this next time, we think they’ll seek to goose economic growth by giving money directly to the people as well as non-bank corporations.

And we think that deflationary bust has already begun. Our record-high stock markets simply somehow haven’t gotten the memo yet.

[bankstersparadise]

Couldn't agree more with the first article.

[bankstersparadise]

And the second one too.

[crashmonitor]

Looks like Carney may have been premature with his forward guidance on interest rates. Inflationary pressures have just fallen off a cliff in the last couple of weeks.

[rollover]

Looks like Carney may have been premature with his forward guidance on interest rates. Inflationary pressures have just fallen off a cliff in the last couple of weeks.

Looks like inflationary pressures have fallen in the last couple of months.

[bankstersparadise]

Looks like inflationary pressures have fallen in the last couple of months.

Carney has never raised interest rates as a bank govenor. He isn't going to start now.

[Assume The Opposite]

More QE? To infinity and beyond?

[Guest]

If they QE again we're doomed.

The 375 billion remains to be unwound. We should be trying to work towards a position where it's feasible to pay it back.

I hope they can resist the temptation and do the right thing for once. But I won't be holding my breath.

[zugzwang]

If they QE again we're doomed.

The 375 billion remains to be unwound. We should be trying to work towards a position where it's feasible to pay it back.

I hope they can resist the temptation and do the right thing for once. But I won't be holding my breath.

This has to be correct. To effect a sustainable recovery, asset prices and current prices need to be brought back into balance. All QE has done is drive up the former and suppress the latter. Reversing it would have the opposite effect.

[Roman Roady]

I hope they print and print and print and print until the whole rotten stinking pile collapses in on them.

[doomed]

I hope they print and print and print and print until the whole rotten stinking pile collapses in on them.

+1

I also think that is what they will do; collapse is pretty much baked in at this point.

[interestrateripoff]

Deflation threat returns to stalk investors and policymakers

[WideAsleep]

I have been watching commodity prices with interest and almost everything is falling in value. I am not just talking about gold and silver although that is where the focus of everyone is right now. Baltic Dry is on the floor and has been for months. Looks like an economic contraction on a global scale.

I guess the stock markets and house prices are the only things not falling because they are being artificially propped up by the magic money. QE works on those assets but it just got locked in as paper gains. In the mean time the real world economy is not growing so demand for everything has stagnated. The Chinese stock market crash should smash demand for real commodities further. The only saving grace is that energy is getting cheaper as well which means low prices can be sustained on the supply side. I wonder how long QE'd assets can continue to stay high without more QE in such an environment?

Cash is king until the next round of central bank printing begins. I wonder who gets to go next after Europe.

[frederico]

They desperately need people to spend money on consumer goods, the problem is all their money is going on rent and tax.

[Guest]

They desperately need people to spend money on consumer goods, the problem is all their money is going on rent and tax.

Give me a reasonably priced house and I might have some disposable income to grease the economy with.

[The Masked Tulip]

Coffee, sugar, etc, etc, - all have fallen dramatically. Copper and iron forecast to continue falling through 2016.

I suppose it depends what China does now. Does it QE/print in order to hold up its own stockmarket and will that then give a bounce in the metal miners? I suspect this will happen and happen quite soon.

[bankstersparadise]

If they QE again we're doomed.

The 375 billion remains to be unwound. We should be trying to work towards a position where it's feasible to pay it back.

I hope they can resist the temptation and do the right thing for once. But I won't be holding my breath.

The treasury doesn't even pay the bank of england the interest on those bonds why would they pay them back the principle! Also 375bn is 7 HS2s......good luck getting that back! Edited July 28, 2015 by bankstersparadise

[bankstersparadise]

5 live were running a big piece about deflation in the dairy industry today. They presented it as over supply plus evil or portions hurts the poor farmers. Given they've spent the last week telling me IRs are going to rise the wheels are really falling off this silly narrative.

[200p]

I think the stock market is being overlooked here - it's over due for a super bull market. After the bull market of commodities, the DOW had a good run. They say don't listen to Jim Rogers - but he had been saying how Commodities and Stocks are negatively correlated - perhaps now is a good time to look at stocks? (But not today - they look a bit shakey)

Edited July 28, 2015 by 200p

[interestrateripoff]

I think the stock market is being overlooked here - it's over due for a super bull market. After the bull market of commodities, the DOW had a good run. They say don't listen to Jim Rogers - but he had been saying how Commodities and Stocks are negatively correlated - perhaps now is a good time to look at stocks? (But not today - they look a bit shakey)

That chart finishes with the Dow at around 10,000 the Dow today is 17440.59, it's gone up another 70% since that chart finished.

[pipllman]

I think the stock market is being overlooked here - it's over due for a super bull market. After the bull market of commodities, the DOW had a good run. They say don't listen to Jim Rogers - but he had been saying how Commodities and Stocks are negatively correlated - perhaps now is a good time to look at stocks? (But not today - they look a bit shakey)

A chart from 30 Jan 2006 isn't much use at the end of July 2015!

As interestrateripoff already said, the DOW is up a touch since then

[sikejsudjek]

They desperately need people to spend money on consumer goods, the problem is all their money is going on rent and tax.

Yes its a real dilema for them. How to make the 1% even richer and hammer the rest of us, and make the economy recover. Can't be done.

[crashmonitor]

I think the stock market is being overlooked here - it's over due for a super bull market. After the bull market of commodities, the DOW had a good run. They say don't listen to Jim Rogers - but he had been saying how Commodities and Stocks are negatively correlated - perhaps now is a good time to look at stocks? (But not today - they look a bit shakey)

Some correlation with UK stocks, heavy weigthing of oil and miners. But not wrong that the UK market, at least, it is about ten years overdue for a super bull; still in a sixteen year nominal trough and probably the last asset class on the planet still priced where it was in the 20th century. I guess speculators have got better things to do with their money like buying flats in Angola at over one million dollars a pop.

The significance of the UK stock market correction...down 8% from recent highs is it will knock on to confidence and Carney wont raise during a Bear market (well not a Bear quite yet). Already bankrupt final salary schemes in both the public and private sector will be further stretched, also business investment will be stifled by low equity to book ratios.

On the plus side I suppose we can get by by selling houses to each other, who needs business after all.

(You could, of course, use 2009 as a point of reference as opposed to 1999, except that stuff then was priced on the basis that we were heading for Armageddon......which some people might still think is the case)

Edited July 28, 2015 by crashmonitor

[Sour Mash]

If they QE again we're doomed.

The 375 billion remains to be unwound. We should be trying to work towards a position where it's feasible to pay it back.

I hope they can resist the temptation and do the right thing for once. But I won't be holding my breath.

QE is never - and was never - going to be unwound. They've monetised about 1/3 of the total national debt to date and if anything, they'll monetise as much more as they can get away with. It's staved off a crash, made fortunes for the banksters and transferred massive amounts of money from the general population to the richest. The establishment loves it.

Look for 100 year Gilts to be introduced at some point, to 'park' the debt obligation of all the existing shorter term Gilts that the bank has printed money to buy.

Carney is trying to control the runaway price bubbles (such as property) that continued ZIRP and money printing is fuelling by talking interest rate rises. Because that's all he will be able to to - talk about it.