The Federal Reserve launched QE infinity this week. The Fed has committed to buy an “unlimited” amount of US Treasuries and mortgage-backed securities. But that’s not all. The central bank also announced it will buy some corporate bonds for the first time ever.
In effect, this is money-printing on a massive scale. And of course, pumping trillions of dollars into the economy will have ramifications. We may well be on the path to hyperinflation.
But the Federal Reserve is not alone. The European Central Bank, along with many others, are slashing interest rates and launching bond-buying programs of their own. This is on top of the easy-money policies that have been ongoing for years.
This is the only fork the central bankers know. Cut interest rates, print money out of thin air and hope that the “stimulus” keeps the economic bubbles inflated.
But as economist Joakim Book wrote in an article originally published on the Mises Wire, the central banks are running out of options. The playbook is played out.
In fact, Book believes we have truly reached the end of this monetary experiment by activist central banks.
The following article by Joakim Book was originally published by the Mises Wire. The opinions expressed for your consideration are Book’s and do not necessarily reflect those of Peter Schiff or SchiffGold.
Corona fears have shifted the world’s central banks into hyperdrive. Talk more, do more, lend more — and buy everything that moves. One after the other, the major central banks took to the barricades, manned the canons, fired their bazookas, and every other military metaphor you can think of.
Nobody stopped to think whether the policies that they quickly and loudly announced would work. Nobody investigated whether they could be prevented from reaching their increasingly desperate creators’ desired recipients — nevermind the much bigger questions of whether these goals are desirable or whether central banks ought to do what they’re doing in the first place. “What if,” asked nobody at any central bank during the last few chaotic weeks, “some crucial stage of our lengthy stimulus chains won’t operate the way we planned?”
After all, it’s not like neatly laid or hastily arranged government plans have ever backfired before.
The mad desire to deal with the crisis, to do something — or at least be seen as doing something — overshadowed anything else.
The European Central Bank delivered an increase in its €2.6 trillion ($2.9 trillion) bond-buying program and offered loans to eurozone banks at –0.75 percent — lower than its already zero interest rate refinancing facilities and below the rate of its previous liquidity-providing and stimulus-enhancing lending facilities. But markets panicked.
Why? President Lagarde hinted that it wasn’t the ECB’s task to manage interest rate spreads between German and Italian bonds (“we are not here to close spreads”), and at the same time tried to offload some responsibility on fiscal authorities. Lagarde quickly backtracked, and the ECB wrote press releases to clarify what she had said and assured that the full range of ECB’s monetary arsenal stood at the ready.
What exactly that arsenal consisted of was still unclear, as there didn’t seem to be much left for an already hyperstimulating central bank to do. On Wednesday they brought out the even bigger guns, from the same tired and dysfunctional arsenal, containing — you guessed it — efforts to buy even more stuff in the form of government and private sector bonds: €750 billion (over $800 billion), a monumental sum, to supply financial markets with extra liquidity. Yet again, Italian and Green bond yields spiked as investors panicked.
Something is not working.
On the other side of the Atlantic, the Fed hasn’t fared much better. On March 15, it launched its major crisis-fighting attack by dropping the fed funds rate to the 0–0.25 percent bound and announcing that it would buy $500 billion in Treasurys and $200 billion in mortgage-backed securities, dropping reserve requirements and liquidity buffers.
Source: SchiffGold
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