Courtesy of Pam Martens
It’s Time to Pull Back the Curtain on the Central Banks
Here’s what is feeding fear in the stock market:
Trump’s presidency is spinning out of control leaving no adults in the room; the much ballyhooed tax cut legislation is actually going to produce frightening budget deficits that push up interest rates to a level that crashes the stock market; the Republican Party that pushed for this fiscally-irresponsible tax cut plan will be responsible for handing the House over to Democrats in the midterms, putting an end to the deregulation perks to corporations that have buoyed this stock market; if the House shifts leadership so will important House Committees like Intelligence and Financial Services, which may decide to start issuing meaningful subpoenas.
And that’s just for starters. A big fear that is much less talked about involves the changing role that global central banks have played in stock and bond markets.
The U.S. central bank, the Federal Reserve, is tapering the amount of U.S. Treasuries it buys as part of its efforts to unwind its massive balance sheet that was amassed as part of its Quantitative Easing (QE) programs that followed the financial crash of 2008.
The Federal Reserve began its tapering in October of last year with the Fed shrinking the amount of maturing Treasury principal it was rolling over into new Treasuries by $6 billion a month. That figure has now grown to $12 billion a month. The shrinkage amount will grow gradually until October of this year when the Fed will roll over $30 billion less each month in Treasuries going forward than it had in prior years. That’s a whopping $360 billion of missing demand at a time of mushrooming supply that results from the growing deficits created by the ill-advised corporate tax cuts.
…
