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Is Central Banks’ License to Print Money About to Expire?
Published on October 29, 2022
Stephen Flood
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Central banks’ buying of government bonds was a win for the government too, as governments benefited through the low yields that central bank buying created. This allowed governments to continue spending well beyond their revenues, thereby increasing already large debt loads without the consequence of rising yields.
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As we discussed in our post on September 28 Ross Geller inspires Bank of England policy the Bank of England has already stepped in to help support UK Gilt prices and has delayed selling bonds off its balance sheet, to continue supporting the government.
And now with the Fed not sucking up the excess US Treasury issuance – Janet Yellen, US Treasury Secretary, is discussing a buyback program to help with liquidity in the market – there is a problem. The problem is that since the Fed has been one of the main buyers of US Treasuries over the last 15-years that “the capacity of broker-dealers to intermediate in the market has not grown in line with the market’s size”. More details on the Treasury’s plans for the buyback and liquidity are scheduled to be released on November 2.
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However, the bond selloff has triggered paper losses for the Fed (and other central banks). The falling bond prices are becoming a huge issue for central banks – their assets are losing value. Last year the Fed remitted about $100 billion to the US Treasury – and in contrast estimates are that the potential Fed loss this year could be upwards of $75 billion. This ‘paper loss’ can sit on the balance sheet for some time but eventually the loss must be addressed.
And guess who foots the bill …. That’s right it’s the governments that issued those bonds in the first place … or to be more precise the taxpayers to those governments.
As losses mount and economies weaken further the large quantitative easing programs are likely to come under scrutiny, ironically the criticism will mostly come from the same governments that the large programs supported.
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Nonetheless, the losses could spur additional calls for central banks to not enjoy the high level of ‘independence’ and power that they currently have. Recall that central bank independence has always been a joke. No entity is independent of the political system which names its head banker, or sets the mission statement, and requires semi-annual visits to parliament or congress.
Investors who hold physical silver and gold should take comfort in the fact that no central banker is needed to validate their wealth since central bankers are merely politicians with a penchant for helping other politicians before anyone else.
Do you think balance sheets of governments are something of concern? What about interest rates, for how long can central banks continue to hike them? Can inflation be contained and controlled by central banks? We discuss this in our latest interview on GoldCore TV, our YouTube channel. Click here to see our chat with Mike Singleton and let us know what you think, in the comments!
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Overview: The US dollar is a little firmer ahead of
the November employment data. It is trading mostly inside yesterday’s range. It
is in a wide range against the Japanese yen (~JPY142.50-JPY144.50) even if not
as wide as yesterday (~JPY141.70-JPY147.30). The Canadian and Australian
dollars are the strongest among the G10 currencies, while the South Korean won,
and Taiwanese dollar are the best performers among the emerging market complex.
Gold, which also traded in an extremely wide range at the start of the week has
coiled back in a narrow range and is confined to about a $2026-$2034 range
today. It is off about 2% this week, which would snap a three-week advance. Oil has also steadied. After
falling below $68 a barrel, January WTI reached about $71.30 earlier today, but
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2023-11-05
Part II of II by Claudio Grass, Hünenberg See, Switzerland. For those of us who have studied history, these Ingenuous beliefs and expectations likely bring a smirk to our face. However, these are entirely reasonable assumptions for most citizens, as the majority of the population is blissfully unaware of the numerous real-life examples that clearly demonstrate just how capable and how eager the government is to do these things – to fail, or to lie, or much more habitually, to do the latter to cover up the former.
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