The global economy is undergoing a period of central bank insanity thanks to an obscure expansion strategy known as quantitative easing, which Wall Street primarily benefits. For the past 10 years, central banks have been creating loans from the air. Only central banks are subject to this type of credit magic.
An increase in the money supply reduces interest rates, and this makes it easier for banks to provide loans. Light loans allow enterprises to expand and make it easier for consumers to obtain loans necessary for the purchase of certain goods, as well as increase debt.
As a country's debt grows, its currency will eventually depreciate. The world is currently at a historically high level of global debt.
In other words, the central banks of the world play a game called "monopoly".
When buying securities using a currency that is supported by debt rather than actual value, we recently noted that the volume of bonds with negative yield amounted to $ 9.7 trillion. At maturity, bondholders actually lose money due to global central bank strategies. The Fed has already hinted that the next recession should wait for negative interest rates.
These massive bond purchases have kept volatility relatively stable, but things can change quickly. High inflation is quite possible. China, which plans to overthrow the dollar by supporting the yuan with gold, can survive the upcoming central bank bubble.
Some central banks are trying to reverse the current expansion policy. Both the Fed, the Bank of Canada, and the Bank of England plan to raise interest rates. The ECB plans to reduce its bond purchases. Too little, too late?
A recent populist movement on the world stage is likely to spur government spending and tax increases as protectionist policies rise. A call to reduce wealth inequality can lead to lower revalued bonds. The question is, how will an artificially created economic boom act in the economy of debtors?
Central banks began using their quantitative easing strategies as a means of recovery after the 2007 economic downturn. Instead of focusing on regulatory policies, central banks became the last resort as they bought up government bonds, mortgage-backed securities, and corporate bonds.
For the first time, regulators have become the largest investment group in the world. The strategy temporarily became a kind of band-aid, as countries were slowly recovering from the global recession. The actual result has been a huge distortion in the value of assets, since interest rates remain low, which allows banks to continue uncontrolled lending.
The results of the intervention of central banks were mixed
While a small segment of the elite was involved in acquiring assets, the rest of the population suffered from a widening income gap, as wage growth did not live up to expectations, and consumer goods, on the contrary, continued to grow. The Fed policy did not find the desired effect.
Despite the fact that the Fed began to abolish the policy of quantitative easing, other central banks, such as the ECB, the Swiss National Bank and the European National Bank, have become even more aggressive in implementing the strategy of quantitative easing, continuing to selflessly print money. By 2017, the Bank of Japan owned three quarters of Japanese ETFs.
The Swiss National Bank is expanding its quantitative easing policy to include international investment. He is currently one of Apple's major shareholders in which $ 2.8 billion has been invested.
Central banks have become the largest investors in the world. This is inflating global asset prices to unprecedented levels. Negative bond yields are just one consequence of this financial misstatement.
While the Fed is cutting its investment purchases, other global banks are closely monitoring the results. Distorted interest rates will hit investors hard, especially those who are looking for more risky and higher returns as a result of quantitative easing.
From the very beginning, central bank policies have been volatile. The stakes in their monopoly game are rising as they try to fix the situation with negative yield bonds when buying stocks. This allows you to continue the game until now. However, these shares cannot be sold without a market crash.