The first lie you’ll hear this year from central bankers is that they intend to stop minting cash to buy government debt. Moreover (and more blatantly), they will announce their intention to start selling back to the market government bonds they’ve already bought. That’s impossible at this stage of the crisis… but a lie the markets need to be told nonetheless.
The second lie is that these asset purchases will be small and limited in scope. But from day one, the size and scope (ie, the type of debt they’re buying) has ballooned. Actions that seemed unimaginable just a few years ago are now the norm. Market players have been hypnotised into thinking this is all very normal.
The third lie is that there’s a considered time scale to all of this. In fact, it was a release from the Fed that suggested the reversal is coming sooner than many think that sent the precious metals into a spin just after Christmas. Of course there is no exit strategy and no timeline here. These guys are making up policy on the hoof. And to my mind it’s only going one way – and that is more of the same and for as long as they can get away with it.
The fourth lie they’ll tell is that they’re fighting deflation. But if that were really true, how can they also say that QE will be reversed? That would surely be to welcome deflation down the line.
No, these guys are pursuing inflationary policies and they use the four lies to send the markets the wrong way.
They have to! I mean, if the inflation indicators – gold, silver and oil – took off, then the game would be up. Their precious bonds would get crushed under their own weight of debt.
So what happens is that whenever the inflation indicators turn up, the banks come up with some rhetoric to pull them down. And if the paper markets take a turn for the worse, they throw in some easing to pull them up.
This is what’s causing the big market swings.
(with thanks to Moneyweek)