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Quantitative tightening the uncharted waters

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Markets Start to Ponder the $13 Trillion Gorilla in the Room

After heading into the uncharted territory of quantitative easing, the world’s central banks are starting to plan their course. How the Federal Reserve, European Central Bank and -- eventually -- the Bank of Japan handle the transition could make the difference between a global rerun of the 2013 "taper tantrum," or the near undetectable market response to China’s run-down of U.S. Treasuries in recent years. Combined, the balance sheets of the three now total about $13 trillion, equating to greater than either China’s or the euro region’s economy.

"You know what they say about mountaineering right? The descent is always more dangerous than the ascent."

Economists and investors are stepping up analysis of the implications of balance-sheet contraction after minutes of the Federal Open Market Committee meeting last month showed officials favor kicking off the process as soon as this year.  Bloomberg

 

Is such a thing even possible?

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Does anyone seriously believe that the QE'd money is ever going to be unwound??? (i.e. The central bank sell the bonds they hold back onto the market to reduce their own balance sheets and destroy the credit that was created?).

 

Never going to happen - the most that will happen is putting the monetisation on hold for a period of time ... to be expanded again once things go south.

 

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10 minutes ago, Sour Mash said:

Does anyone seriously believe that the QE'd money is ever going to be unwound???

 

Of course not, the rich are just going to jeep our savings and wages for themselves.


We#ve been f**king robbed right before our eyes and people celebrate their house price shooting up

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I thought QE was a good way to pump inflation (debt forbearance) into the economy.....when an old penny becomes a pound it is good isn't it?.......no better off since the pound buys no more than the penny used to.....but they call it progress or growth.....take your pick.;)

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2 hours ago, winkie said:

I thought QE was a good way to pump inflation (debt forbearance) into the economy.....when an old penny becomes a pound it is good isn't it?.......no better off since the pound buys no more than the penny used to.....but they call it progress or growth.....take your pick.;)

QE works if enough consumers exist in the market... If the population were to shrink, then a short fall would lead to increases in taxes. its a vicious cycle :rolleyes:

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9 minutes ago, maverick73 said:

QE works if enough consumers exist in the market... If the population were to shrink, then a short fall would lead to increases in taxes. its a vicious cycle :rolleyes:

Get the consuming bigger numbers people bit.....not quite sure about the taxes bit, no or low income spending and wealth creation, who will be paying the taxes?;)

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16 minutes ago, winkie said:

Get the consuming bigger numbers people bit.....not quite sure about the taxes bit, no or low income spending and wealth creation, who will be paying the taxes?;)

As they say, in oder to spend you have to generate... they can't print anymore, so they will have to tax more... the same chap said the consumers don't save enough money... Houseprices will not fall unless the Bank of England raises the base rate.. its the only way....

http://news.sky.com/story/chancellor-hints-tories-may-ditch-2015-pledge-not-to-raise-taxes-10845447

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28 minutes ago, maverick73 said:

As they say, in oder to spend you have to generate... they can't print anymore, so they will have to tax more... the same chap said the consumers don't save enough money... Houseprices will not fall unless the Bank of England raises the base rate.. its the only way....

http://news.sky.com/story/chancellor-hints-tories-may-ditch-2015-pledge-not-to-raise-taxes-10845447

.....all depends on what they choose to tax ....income, expenditure or open and/or hidden assets/wealth?.....tax income or income and/or expenditure will just force people into earning less, spending less or hiding more......good for the goose good for the gander.;)

Edited by winkie

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1 hour ago, maverick73 said:

As they say, in oder to spend you have to generate... they can't print anymore, so they will have to tax more... the same chap said the consumers don't save enough money... Houseprices will not fall unless the Bank of England raises the base rate.. its the only way....

http://news.sky.com/story/chancellor-hints-tories-may-ditch-2015-pledge-not-to-raise-taxes-10845447

Falling retail sales, rising taxes, higher interest rates on the horizon

It looks like we are recession bound

 

Edited by stormymonday_2011

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5 hours ago, winkie said:

I thought QE was a good way to pump inflation (debt forbearance) into the economy.....when an old penny becomes a pound it is good isn't it?.......no better off since the pound buys no more than the penny used to.....but they call it progress or growth.....take your pick.;)

Liked it, always wanted some one liner like this during debates with BTLers. They will never understand this that minute for sure, but will carry it home to be digested later.

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1 hour ago, stormymonday_2011 said:

Falling retail sales, rising taxes, higher interest rates on the horizon

It looks like we are recession bound

 

While at the same time, and even more incredibly, the ECB and BoJ have injected a further $1 triillion into the global liquidity supernova in the first four months of 2017, yoy the greatest central bank buying spree on record!

http://www.zerohedge.com/news/2017-04-21/why-nothing-matters-central-banks-have-bought-record-1-trillion-assets-2017

CBs%20chart%201.jpg

bofa%20liquidity%20supernova.jpg

Edited by zugzwang

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4 hours ago, stormymonday_2011 said:

Falling retail sales, rising taxes, higher interest rates on the horizon

It looks like we are recession bound

 

Recession is two successive quarters of negative growth. The country's engines are purring, it just has flat tires.

More seriously

Aggregated demand side shocks like.. 

• Higher interest rates which reduce borrowing and investment

• Falling real wages

• Falling consumer confidence

• Credit crunch which causes a decline in bank lending and therefore lower investment.

• A period of deflation. Falling prices often encourage people to delay spending. Also deflation increases the real value of debt causing debtors to be worse off.

• Appreciation in exchange rate which makes exports expensive and reduces demand for exports.

Aggregated supply side shocks like.. 

• Rising costs of commodities, such as oil, coffee, cocoa, gas, gold, silver

• A fall in confidence can precipitate a recession

The UK is about to experience a left; right slap in the face.. but I don't see that impacting asset values too much, maybe a 15% drop. Only base rate rises have the impact that majority of the forum desires.

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29 minutes ago, maverick73 said:

Recession is two successive quarters of negative growth. The country's engines are purring, it just has flat tires.

More seriously

Aggregated demand side shocks like.. 

• Higher interest rates which reduce borrowing and investment

• Falling real wages

• Falling consumer confidence

• Credit crunch which causes a decline in bank lending and therefore lower investment.

• A period of deflation. Falling prices often encourage people to delay spending. Also deflation increases the real value of debt causing debtors to be worse off.

• Appreciation in exchange rate which makes exports expensive and reduces demand for exports.

Aggregated supply side shocks like.. 

• Rising costs of commodities, such as oil, coffee, cocoa, gas, gold, silver

• A fall in confidence can precipitate a recession

The UK is about to experience a left; right slap in the face.. but I don't see that impacting asset values too much, maybe a 15% drop. Only base rate rises have the impact that majority of the forum desires.

Good summary. Can I add a financial crisis in China and Emerging Markets (maybe Europe too) to the demand side?

And one caveat: Asset bubbles are generally symmetric. What goes up a long way usually falls right back to where it started (and often negatively overshoots before correcting again).

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19 hours ago, zugzwang said:

Good summary. Can I add a financial crisis in China and Emerging Markets (maybe Europe too) to the demand side?

And one caveat: Asset bubbles are generally symmetric. What goes up a long way usually falls right back to where it started (and often negatively overshoots before correcting again).

Rational points towards a looming corrective price. If spending is slowing down, then they will either force sterling to rise (directly via interest rates; indirectly by decreasing circulation of money).

Its interesting to note, sterling jumped from $1.21 to $1.28 over the last two weeks. I'm presuming this is to combat rising inflation (CPI).

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