I am sorry, but we need to get ready for higher asset prices

Lasting solutions will never be entertained

Since the new year, the business media have been working with the elites and the central banks to reframe the monetary stimulus issue for the investment community. The bottom line; get ready for more QE. We need it and the central banks stand ready to save us.

Read:
ECB in panic mode? Experts warn it’ll take more than a central bank to help Europe recover

Global Economic Briefing: Central Bank Balance Sheets

Feeling panic? In a few years, Sydney real estate prices will look like a bargain. The central banks are ready to inflate asset prices once again.

Yesterday, Bloomberg wrote an article that was picked up by The Japan Times, Bank of Japan’s never-ending monetary stimulus offers lessons for the world’s central banks, and it is telling us where the developed world is heading. What I find funny about the authors’s observations is that much of proposed policies, including yield curve control, are already in use in the U.S. and Europe.

Central bankers searching for options to fight the next downturn should look to Japan, where policymakers are gathering for a regular review of the world’s most epic monetary stimulus program.

The Bank of Japan’s two-decade journey from zero interest rates to massive asset purchases, negative rates and yield-curve control demonstrates a combination of tools that can be used to sustain stimulus — along with the huge damage that piles up when it drags on too long.

As global economic growth wanes, Europe doles out a fresh round of easing and the U.S., Canada, Britain and Australia put rate hikes on hold, economists are asking what more can be done with scant room to lower borrowing costs and already swollen balance sheets.

“Whether central banks like it or not, there is little choice than to venture further with ‘creative’ new strategies to reflate inflation expectations,” said Ben Emons, managing director of global macro strategy at Medley Global Advisors in New York.

Yield targeting, interest-rate ceilings, deeper fiscal and monetary coordination and various forms of asset purchases should be on the radar of policymakers around the world, according to Emons.

Bank of Japan’s never-ending monetary stimulus offers lessons for the world’s central banks– The Japan Times (Bloomberg), March 14th

The real problems will never be addressed

The only real solution to the global economic circumstances would be for some sort of debt forgiveness. Imagine a scenario where the central banks wrote off or retired some of the sovereign debt on their balance sheets? The Fed already returns to the U.S. Treasury, the interest income it earns on it’s asset portfolio. But this will not happen. It is not part of the plan, as that would empower the common man at the expense of the banking families.

[The BOJ’s] latest experiment in yield-curve control involves pinning short-term borrowing costs at minus 0.1 percent and holding long-term rates around zero percent by operations in the bond market.

The tool has drawn the attention of Federal Reserve Deputy Chair Richard Clarida amid an examination of strategy at the U.S. central bank. Clarida has noted that yield-curve control could be helpful when there is little scope for conventional rate cuts, but that it also carries the threat of expanding the balance sheet too much.

But for the BOJ, which has already swallowed up 43 percent of Japanese government bonds, this tool has actually let it slow the pace of purchases and extend the life of stimulus. Its huge holdings of JGBs relative to other investors now allow it to guide rates with relative comfort.

Bank of Japan’s never-ending monetary stimulus offers lessons for the world’s central banks– The Japan Times (Bloomberg), March 14th

All other things being equal, the world will become a much more expensive place, even as consumer prices remain muted. Just because real estate prices will continue to move higher, does not mean that homeowners will be wealthier. Many will still lose their homes. Debt, higher property taxes, onerous local laws, and higher repair and rehab costs, will eat away at the public. Only well-funded individuals will remain. As real estate prices continue to spiral higher, more properties will be owned by corporations.

The elites will never entertain any policy ideas that genuinely address the issues. The real plan is consolidation of the global wealth and we would be foolish not to see where the asset markets will move.

We need to plan accordingly.