Thursday, October 20, 2016

"Who are today’s Drs Frankenstein? Haruhiko Kuroda at the Bank of Japan, Mario Draghi at the European Central Bank (ECB) and Janet Yellen at the US Federal Reserve. They each have a monster in their castle. Central bankers have embraced extraordinary monetary policies to create economic growth where none would exist. How have they done this? By printing lots and lots of money and injecting it into the system through massive bond purchases. The aggregate bond market is growing, but bonds are being purchased and locked away in central bank dungeons faster than new bonds are being issued. At the present pace, central banks will soon run out of bonds to buy. Beginning in March 2015, the ECB embarked on its own quantitative easing (QE) program, buying sovereign and agency bonds at €60 billion a month, ramping up to €80 billion a month. Since then, the ECB’s balance sheet has grown from about €2 trillion to €3.4 trillion in just 18 months. Though eurozone sovereign debt outstanding is €7.5 trillion, ECB rules allow bonds to be purchased with 2-30 years maturity and a yield more than –0.4 per cent. According to Tradeweb, the maturity and yield restrictions render €1.5 trillion in bonds ineligible for purchase, bringing the availability for purchase down to €6.0 trillion. The ECB cannot hold more than a third of an issue or a country’s debt. Consequently, the problems at the individual country level are even more acute."
- Ron Rimkus
link here to the commentary

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