It wouldn’t be too long before they run out of bonds to buy anyway we all know what’s going on in Italy and the good data at the turn of the year (now deteriorating) gave them the most plausible excuse they could think of. Perhaps all northerners and fiscally hawkish governors revolted and got him to end the purchases. Maybe Draghi faced total revolt over Italy today. No there was something else going on today in my opinion. A forecast of 1.7% inflation in the future, with the spot data deteriorating, and the problems of asymmetry at the zero bound … it just makes no sense. The pre-commitment to taper and end purchases makes no sense in the context of their projections or the current Eurozone economic situation. The bursting of asset bubbles will be a very “deflationary” thing. We are in a very late-stage position here. And it is not immune to an emerging market collapse in general. The US is not immune to a slowdown in Europe and China. The decoupling theory was wrong then, and it’s wrong now. This is the reverse of the 2007 decoupling theory that stated China would decouple from the US economy. The other common wisdom of the day is the US will decouple from the global markets. The Fed’s and ECB’s balance sheets and all the bubbles are proof enough things are already broken beyond repair. The consensus is the Fed will keep hiking “until it breaks something”. The US yield curve keeps getting flatter and flatter. It’s easy to assign a reaction to the news.īut the bond market could just as easily be reacting to something else, like yesterday’s news: Fed Hikes Again, Modifies Accommodation Language, Plans on 2 More Hikes in 2018 Purportedly, this action is due to the ECB’s announcement. Instead bond yields fell.įor discussion, please see Spending Like Crazy: Retail Sales Jump but Bond Yields Lower Today’s excellent retail sales report in the US should have sent US treasury yields higher. Both sets of actions created zombie corporations.The Fed and the ECB’s policy have two things in common. The US recapitalized banks by giving them free money.įor further discussion, please see Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks. Negative interest rates clobber savers and hurt the banks. Draghi argued Thursday that savers could invest in other assets while profits at bank and insurance companies hadn’t been hurt. Negative interest rates tend to hurt savers and banks, but Mr. Some countries, notably Greece and Italy, still have large volumes of nonperforming loans.> “There is no sign of a real rate hike cycle.”Ĭritics argue the ECB’s purchases coincided with steep increases in the prices of property and other assets and made it easier for unviable “zombie” firms to stay alive. The ECB “has done everything it can to prevent investors from pricing in rising interest rates,” said Joerg Kraemer, chief economist at Commerzbank in Frankfurt. The central bank Thursday laid out plans to wind down its giant bond-buying program by the end of this year, but said it likely would wait “at least through the summer of 2019” before raising its deposit rate, now at minus 0.4%. The European Central Bank is closing a chapter on one controversial policy, government bond purchases, while extending the life of another: negative interest rates. The Wall Street Journal reports ECB to End Bond-Buying Program in December as Crisis-Era Policies Wind Down. ECB to End Bond-Buying Program in December
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