This week has now seen two global banking entities admit that the monetary policies created by most central banks have not only failed, but are the root causes for what will become the next great financial crisis. On Friday, the IMF came out with a paper ceding that the Japanese central bank will very quickly run out of assets to purchase, meaning that their massive Quantitative Easing program will grind to a halt, and leaving Japan with no more arrows in their quiver to keep their asset bubbles afloat.
The Bank of Japan may need to reduce the pace of its bond purchases in a few years due to a shortage of sellers, said economists at the International Monetary Fund.
There is likely to be a “minimum” level of demand for Japanese government bonds from banks, pension funds, and insurance companies due to collateral needs, asset allocation targets, and asset-liability management requirements, said IMF economists Serkan Arslanalp and Dennis Botman.
We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds.
… there is likely to be a “minimum” level of demand for JGBs from banks, pension funds, and insurance companies due to collateral needs, asset allocation targets, and asset-liability management (ALM) requirements. As such, the sustainability of the BoJ’s current pace of JGB purchases may become an issue. – Bloomberg via Zerohedge
This analysis by the IMF however was just the first shot fired going into the U.S.’s Labor Day weekend. Just one day later on Sep. 5, China informed members of the G20 that their stock market bubble had burst, and that they would be needing to engage in more rounds of proactive monetary policies to stem off what is likely to be a long period of financial attrition.
Zhou Xiaochuan, governor of China’s central bank, couldn’t stop repeating to a G-20 gathering that a bubble in his country had “burst.”
It came up about three times in his explanation Friday of what is going on with China’s stock market, according to a Japanese finance ministry official. When asked by a reporter if Zhou was talking about a bubble, Japanese Finance Minister Taro Aso was unequivocal: “What else bursts?”
Chinese stocks have plunged almost 40 percent since a June peak, triggering unprecedented intervention from the authorities. The central bank cut rates for the fifth time since November last month and lowered the amount of cash banks must set aside, falling back on its major levers to support equity prices and the slowing economy. – Bloomberg
What is interesting here is China’s open admission of problems within their equity markets when the mainstream continues to berate their government for not being transparent enough on their economic data. However, this is pure sophistry since the U.S. has been masking their true economic situation for years by changing the goalposts such as the recent double ‘seasonal adjustment’ adaptation to their GDP.
Quantitative Easing by central banks around the world has been for one reason only… to funnel the wealth of nations into the hands of a small elite. And knowing that a global financial death event occurred in 2008, it was inevitable that governments around the world were planning for a shift to a new paradigm in the near future, with just a small window available to undertake this historic looting of wealth. But as we now go seven years into a ‘recovery’ that is based on tens of trillions of dollars in un-sterilized money creation, and zero percent interest rates, the timing of the final collapse may be revealing itself in a cascading fashion, with the monetary masters now completely impotent to deal with the monster they have created.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.