In the past week, we have seen co-ordinated and unprecedented action by global central bankers.
First, Mario Draghi, chariman of the European Central Bank, said that he would buy short dated government bonds from any Eurozone country that asks for his help. Effectively, he is saying that he will unleash a flood of liquidity and force yields downwards, making it easier for governments to fund their spending or repayment programs.
If this was uncharacteristic of the Europeans, what came next was the biggest bazooka of all. 'Helicopter' Ben Bernanke, chairman of the US central bank (so called because he once said that if throwing currency out of a helicopter to people below could help the economy, he would do it), laid out QE3. How much is he willing to spend? No limits at all! He says he will spend $40bn each month - for ever, if required, buying mortgage bonds till the US job market improves. This is the stuff of superhuman comics and real epoch making events.
What this means is that currencies are racing against each other to debase themselves, so that borrowers have to return less (in real terms) than they had borrowed. Lenders (savers) are going to get shafted. But hey! no one said capitalism was benign.
The markets are celebrating wildly, because this means that the global currency taps are open without limit. However, I think we need to be a bit circumspect - because after this, central bankers have no more tools left. They have done all they could (and maybe more than they should). Now it is up to the politicians to deliver - austerity / increased productivity in Europe, and spending in the US.
Whatever happens, one thing is sure - these events will be discussed and debated in history books many many decades from now. All I can hope for is that these gentlemen are looked upon by history as heroes, and not villians who blew up the world as we knew it.
As for me, I am going to move all my meagre cash savings into gold or land! The reign of cash is over, the era of assets has begun!
First, Mario Draghi, chariman of the European Central Bank, said that he would buy short dated government bonds from any Eurozone country that asks for his help. Effectively, he is saying that he will unleash a flood of liquidity and force yields downwards, making it easier for governments to fund their spending or repayment programs.
If this was uncharacteristic of the Europeans, what came next was the biggest bazooka of all. 'Helicopter' Ben Bernanke, chairman of the US central bank (so called because he once said that if throwing currency out of a helicopter to people below could help the economy, he would do it), laid out QE3. How much is he willing to spend? No limits at all! He says he will spend $40bn each month - for ever, if required, buying mortgage bonds till the US job market improves. This is the stuff of superhuman comics and real epoch making events.
What this means is that currencies are racing against each other to debase themselves, so that borrowers have to return less (in real terms) than they had borrowed. Lenders (savers) are going to get shafted. But hey! no one said capitalism was benign.
The markets are celebrating wildly, because this means that the global currency taps are open without limit. However, I think we need to be a bit circumspect - because after this, central bankers have no more tools left. They have done all they could (and maybe more than they should). Now it is up to the politicians to deliver - austerity / increased productivity in Europe, and spending in the US.
Whatever happens, one thing is sure - these events will be discussed and debated in history books many many decades from now. All I can hope for is that these gentlemen are looked upon by history as heroes, and not villians who blew up the world as we knew it.
As for me, I am going to move all my meagre cash savings into gold or land! The reign of cash is over, the era of assets has begun!
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