Jim Sinclair coined the phrase “QE to infinity” back in 2009. Few at the time really understood what he meant but then came QE 2, Twist, and QE 3. The premise was that the Fed (central banks in general) could never really tighten credit or monetary conditions in the future without imploding financial markets and ultimately the real economy. Now that the tightening cycle has been hastily aborted (for exactly the reasons Jim originally laid out), the world is right back to where it left off with QE 3 …QE to infinity is already here!
As it stands now, every central bank on the planet is in “easing mode”. The easing has already brought forth something that 20 years ago was unthinkable …negative interest rates. I have written several past articles on the topic of negative interest rates, they are archived for your review. The world currently ex US has seen sovereign bond yields average drop below zero for the first time ever
It seems as if this is only the beginning!
I say only the beginning because it is clear the doubling down efforts by central banks has not worked. The global real economy is again sputtering even with central bank’s life support efforts. Liquidity is again quite tight which should not be the case while central banks bid for credit, but why? Even though central banks have flooded auctions with bids, the real economy is not generating the necessary cash flows needed. Tariffs and trade wars have arisen for the simple reason the “economic pie” is no longer expanding and in order to service the now gargantuan debt requires each player to have a larger slice of the stagnant (shrinking?) pie. China’s retaliation today is just a small reminder of such.
Now that the fallacy of monetary policy can cure all is discredited, what’s next? The winds of fiscal policy deficit spending have suddenly begin to blow because “zero” has been breached! No matter how big and important sounding the words are to describe and cheerlead negative interest rate policy …everybody knows. Everybody knows that everybody truly knows negative rates are a complete joke and in fact a perfect illustration that the currencies themselves have no value. It is by no coincidence gold is trading at all time highs in no less than 73 major currencies. It will not be long before “73” will be replaced with “ALL” currencies!
So fiscal stimulus is next? There are a few pesky questions without valid answers that allow “infinity” to enter the equation. First, sovereign balance sheets were not exactly pristine back in 2008 but they are disasters now. 100%+++ debt to GDP ratios litter the globe now. 20 years ago, 100% debt to GDP was the entry portal to banana republic status. Today, 100% is considered “clean”? Hardly!
The real rub is this, who exactly will purchase the debt offered by sovereign treasuries? Let’s look at the US. The US Treasury is already running $ trillion annual deficits, fiscal stimulus will only increase this number and probably substantially! Will China fund our deficit as they had since 2008? Does Japan even have the ability? Does anyone on the planet have the ability to fund US deficits …not to mention all the other sovereigns coming to market? The answer of course is no, the only entities with the ability to fund the coming credit issuance are the various central banks. In a word …MONETIZATION! Not just behind the back monetization, what comes is in your face monetization that cannot nor will be hidden. Even the common man will understand central banks are creating new currency out of thin air and thus diluting (to zero) already issued currency.
QE to infinity is no joke. It is very real and it is already here and just getting started. Think about how much credit issuance will be needed to backstop existing debt, not to mention the cesspool of over $1 quadrillion worth of derivatives? “Infinity” is an unfathomable number but the best way to understand it is to look at and define/understand its opposite. The opposite of infinity is “0”. Most everyone knows and can understand “zero” as a concept. In the real world, infinity is not what people will understand. What they will understand is the value of their fiat currencies approaching and eventually reaching zero value or purchasing power.
I will leave you with something to think about. Societies are based on currencies used to perform business transactions. Currencies are also the base for savings and pension arrangements. Many things financial can and have been swept under the rug for many years. Failing currencies cannot be hidden because the common man uses them every day. The common man will immediately see and feel if his currency is failing. How can central banks monetize insolvent treasury debt without destroying the issued currency? And what does that mean for all things denominated and saved in said currency?
The end of the monetary fiat road is not nigh folks …it is already here! I have tried to illustrate and explain over the years how all monetary roads lead to gold. It looks like “liability capital” will all now merge in to a super highway leading directly to gold and silver …where no liability exists!
This article was originally posted for subscribers a twww.jsmineset.com