Does Easy Monetary Policy Enrich the Financial Sector?
Guest post by Azizonomics.
Yesterday, I strongly insinuated that easy monetary policy enriches the financial sector at the expense of the wider society. I realise that I need to illustrate this more fully than just to say that when the central bank engages in monetary policy, the financial sector gets the new money first and so receives an ex nihilo transfer of purchasing power (the Cantillon Effect).
The first inkling I had that this could be the case was looking at the effects of quantitative easing (monetary base expansion) on equities (S&P500 Index), corporate profits and employment.
Herding Cats and Credit Market “Weakness”
Guest post by Peter Tchir of TF Market Advisors.
Herding Cats and Obstinate Politicians
The mental image is so clear. Draghi, Hollande, and Obama, wiping the sweat from their brows with dust covered hands, having successfully corralled the Merkel. She’s still feisty and not happy about being in the pen, but they have managed it for now. Job well done, time for a well deserved refreshment after a long day.
It’s only then that they realize the Rajoy isn’t in the pen. They can’t believe their eyes. There is that damn Rajoy sitting on the other side of the river licking his paws preening himself. They cannot believe. They are stunned, flabbergasted, and about to go ballistic.
Seriously, after all the effort to cobble together something that they managed to convince the markets would turn into action is being derailed by the person who is most to benefit?
It is absolutely ridiculous, but it’s not as though they will just give up. They will corral Mr. Rajoy. It is inevitable and the real risk is whether Merkel is able to escape while their attention is focused on Rajoy.
So while it is concerning that Spain is not playing along, I think the pressure brought to bear will be great and Spain will accept something to keep the EU, ECB, and Obama happy.
GATA’s Chris Powell on the Silver Manipulation Probe & the Fed Gold Audit!
Laureen Lyster interviews Chris Powell on gold and silver manipulation, the Fed and much more.
Much watch video below.
Is Draghi dragging Spain and Italy down?
With the Spanish yield curve at extreme levels, the relevant question is whether Draghi has made things worse going forward? From Bloomberg.
European Central Bank President Mario Draghi’s bid to bring down Spanish and Italian yields may spur the nations to sell more short-dated notes, swelling the debt pile that needs refinancing in the coming years.
Yields on Italian and Spanish two-year notes plunged after Draghi said on Aug. 2 the ECB may buy debt on the “short-end of the yield curve” as part of a broader crisis-fighting plan. The gap between Spain’s two-year and 10-year yields rose on Aug. 6 to the widest in at least two decades, while the spread between similar Italian securities also approached a record.
The average maturity of Spanish debt is the shortest since 2004 as Spain, like Italy, hasn’t issued 15- or 30-year bonds all year. As Prime Ministers Mario Monti and Mariano Rajoy fight to avoid bailouts that may threaten the euro’s survival, the ECB’s plan risks adding to pressure on the two nations’ treasuries.
The inverted crash
Just a reminder.
Prior to the start of the summer, many were writing about another perfect carbon copy of last year. If investing was only that easy.
In this inverted summer crash of 2012, the Eurostoxx is up 18% over the past two months. Last year we saw a loss of 18% over the same period.
The three latest days, Eurostoxx is up app 8%. During the same three days yesterday, Eurostoxx was down 10%. Market poetry at its best, and yes, this time was different.
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