April 8, 2022
|We talked yesterday about the path to perpetual quantitative easing. After all, we’ve yet to see an example of a successful exit.
Already, just as the European Central Bank (ECB) is projecting rate hikes later this year, and is ending its emergency pandemic bond buying program, there was news from Bloomberg today that the ECB is, at the same time, formulating a plan to prevent a spike in sovereign bond yields in the weaker spots of Europe — with what is likely, more QE!
Let’s talk about why?
Back in 2012, yields on Spanish and Italian sovereign debt had skyrocketed to unsustainable levels, which put two of the biggest countries in the eurozone on default watch, which threatened the dominoes to fall in Europe (a cascade of sovereign debt defaults), and a collapse of the euro (the monetary system). It was an ominous moment, threatening the disintegration of the euro and euro zone.
But ECB chief (at the time), Mario Draghi, made the threat to do ‘whatever it takes.’ He threatened to buy unlimited Italian and Spanish debt.
Draghi’s threat put in the top for yields, without the ECB having to buy a single bond. Within two years, yields on Spanish debt fell from almost 8% to 1%. A European collapse was averted.
Fast forward to today: the ECB is exiting its pandemic-induced QE program, and scaling down a QE program they’ve been running since 2014. But there is trouble brewing.
The French election polls show Marine Le Pen closing in on Macron. Le Pen is a nationalist, and is anti-euro (the single currency). A Le Pen win would set back into motion (again) the threat of a disintegration of the euro. And again, crisis policies would be back. Not just for the European Central Bank, but global central banks.
Again, this leads us back to the conversation of more control and intervention by central banks over markets – to plug new leaks in the global economic system.
QE is Hotel California. And it highlights the eventuality of a reset of global debt, and a new monetary system. It’s coming, and it’s coming soon.
On that note, as we’ve discussed, the central bankers and politicians have been telegraphing a monetary system that includes a move to a digital dollar (“central bank digital currencies,” in global coordination).
We had another shot across the bow this week. Janet Yellen (Treasury Secretary) gave another prepared speech on “digital assets.”
This gets the crypto-enthusiasts excited, as they assume this means the government is taking steps toward accepting and legitimizing private cryptocurrency. It’s precisely the opposite. As Yellen said, “sovereign money is at the core of a well-functioning financial system.”
She went on to say how the history of money in the United States was littered with attempts at different forms of private money. She says, it didn’t work, and they regulated it away.
She went on to say: “monetary sovereignty and uniform currency have brought the clear benefits for economic growth and stability. Our approach to digital assets must be guided by the appreciation of those benefits.”
So, we have another clear warning for the private crypto market. The government will regulate it away, and strengthen their monopoly on money through a “central bank digital currency.”