Central Banks buying up the worlds stock markets

[Zebo]

Wonder why markets are doing well?
Central banks print money from thin air are in a race to buy up stock market. Isnt this fascism? At the very least the global economy can hardly be described as anything even resembling a free-market system.

According to the OMFIF, central banks collectively now have $13.2 trillion in assets (including gold). That is nearly 20% of the value of all of the stock markets in the world, which comes to $62 trillion.

China is biggest investor and prints money out of thin air also to buy up companies.

However, the PBoC has done nothing to earn these dollars or Euros beyond printing yuan. It trades the yuan for the dollars earned by Chinese sellers, who need local currency to pay their workers and suppliers. The money involved in these transactions has thus doubled. The merchants have been paid in yuan and the central bank has an equivalent sum in dollars or Euros. That means the Chinese central bank's holdings are created out of thin air no less than the Federal Reserve's dollars are.

http://www.huffingtonpost.com/ellen-brown/buying-up-the-planet-outo_b_5516392.html

 

[Kwatt]

Wonder why markets are doing well?
Central banks print money from thin air are in a race to buy up stock market. Isnt this fascism? At the very least the global economy can hardly be described as anything even resembling a free-market system.



China is biggest investor and prints money out of thin air also to buy up companies.


http://www.huffingtonpost.com/ellen-brown/buying-up-the-planet-outo_b_5516392.html

I wonder if they are doing all their buying after 3:00 PM EST...


.

 

[Engineer]

I wonder if they are doing all their buying after 3:00 PM EST...


.

Why do you say that?

 

[Kwatt]

Why do you say that?

A couple of days in the each of the last 2 weeks or so it looked like the market was going to close in the red. Then sometime after 3:00 PM a lot of buying took place. Probaly just a coincidence. Just someone buying while down at the end of the day.


.

 

[Engineer]

A couple of days in the each of the last 2 weeks or so it looked like the market was going to close in the red. Then sometime after 3:00 PM a lot of buying took place. Probaly just a coincidence. Just someone buying while down at the end of the day.


.

For as long as I've watched the markets, action happens, up or down, in the last hour of trading.

 

[Dari]

To the OP, it isn't pretty. It doesn't look or smell right. But it works. The problem is no one knows how to stop this without undoing all the hard work.

 

[Texashiker]

To the OP, it isn't pretty. It doesn't look or smell right. But it works. The problem is no one knows how to stop this without undoing all the hard work.

What hard work? Printing money out of thin air?

The federal reserve has been printing $85 billion a month for the past 2 years.

The ability to print money has to be taken away from the banks like the federal reserve.

Want to buy microsoft? Just print money and buy stock.

Want to buy apple? Print money and buy stocks.

The foundation of capitalism does not include printing money whenever the banks want.

 

[alcoholbob]

This is also why a savings account pays negative interest now after inflation, whereas in the past you were 1-3% ahead of inflation if you put your money in an interest bearing account. Yields are being driven to effectively zero or negative while central banks seize assets from money printing.

Chinas printing evens out their balance of payments as the printing is simply a consequence of exporting companies depositing their profits at the bank of china and trying to convert foreign currencies to rmb to pay their workers and suppliers, so the money is directed to industry and production, causing wages in china to rise along with the inflating money supply. This is different in the US where the money is printed is actually destroying the private sector as its backed by nothing and is competing with the private sector for productive assets, so the result is lower production, lower wages, and higher prices.

 

[Texashiker]

Chinas printing evens out their balance of payments as the printing is simply to convert foreign currencies to rmb, and the money is directed to industry and production. so wages in china are rising along with the inflating money supply. This is different in the US where the money is printed is actually destroying thr private sector as its backed by nothing and is competing with the private sector for productive assets, so the result is lower production, lower wages, and higher prices.

China prints money, it goes into projects like the 3 gorges dam.

US prints money, it goes into shoring up the bond market.

The federal reserve prints enough money to build something like 3 or the 3 gorges dam every month. Where does that money go? To the bankers instead of creating jobs.

 

[Generator]

Obama has been asking for infrastructure, but the Republicans just rather toil for their masters and kiss their rings. Biden laments the infrastructure all the time, but unfortunately the Republicans are scared of the president's black face. The Republican seems comfortable with squalor. Earthquakes shaking cities east to west from fracking. A black morass in the Gulf of Mexico. Poisoned water in every corner of the country. Investment solar tech is skewered as liberal fantasy and china just goes and gets it done.

The right wing is simply in the way. They been in the way for decades now, since Nixon really. Can't be much longer we have to deal with them though. Once we run them down and fill them with holes this country will boom.

 

[Zebo]

Hope you're right generator. If you read the Princeton report on our oligarchy they are all bought and sold and democrats just pretend.

And yeah we could be 100% fossil free, our whole grid, for what iraq costed

 

[Dari]

What hard work? Printing money out of thin air?

The federal reserve has been printing $85 billion a month for the past 2 years.

The ability to print money has to be taken away from the banks like the federal reserve.

Want to buy microsoft? Just print money and buy stock.

Want to buy apple? Print money and buy stocks.

The foundation of capitalism does not include printing money whenever the banks want.

The financial crisis, like all crises before it, was meant to be a correction. Governments all over the world stepped in to mitigate the correction, or at least slow it down into bite-sized chunks. This would allow prices to be lowered at a reasonable pace rather than one that would lead to exponential loses. The problem is we just don't know, in the grand scheme of things, how good of a job we're doing. And no politician, let alone technocrats at the central banks, wants to be the one that causes everything to regress.

 

[LegendKiller]

China prints money, it goes into projects like the 3 gorges dam.

US prints money, it goes into shoring up the bond market.

The federal reserve prints enough money to build something like 3 or the 3 gorges dam every month. Where does that money go? To the bankers instead of creating jobs.

No, China's printing goes to ghost cities and ridiculous public projects to nowhere.

Does Fed printing go to the bankers? Do you understand anything at all?

 

[alcoholbob]

No, China's printing goes to ghost cities and ridiculous public projects to nowhere.

Does Fed printing go to the bankers? Do you understand anything at all?

Quantitative Easing Explained:

https://www.youtube.com/watch?v=PTUY16CkS-k

 

[LegendKiller]

Quantitative Easing Explained:

https://www.youtube.com/watch?v=PTUY16CkS-k

I don't need youtube.edu to explain QE. However, what I am interested in is knowing how people think that this is massively benefitting the banks by "giving" them free money in a huge amount.

Gov't sells treasuries, bank buys treasuries, fed buys treasuries. The bank gave money to the gov't and the fed prints to give it back. Did the bank get "free" money, or did it turn around and sell something it only held for a short period of time. Is it a loan?

If you buy a gallon of milk and the fed buys it for the exact same price, did the fed "give" you free money, or just purchase the gallon of milk?

Furthermore, when a bank originates a $100,000 mortgage they have to fund that mortgage, so they sell bonds, raise equity, and use deposits to give to the seller. That mortgage is then sold to Fannie or Freddie which turn around and sell it to the Fed. Did the Fed "give" money to the bank, or did they just purchase something of value which the bank paid for in the first place?

Now one could easily say that the Fed buying up assets has resulted in too-few assets around, thus, too much money chasing too few assets results in lower borrowing costs, both for companies (yield yield and inv grade corp debt rates are cheap!) and for actual consumers. The lack of assets (and capital) has resulted in excess reserves at the Fed, sure. However, to say the fed is "giving" or "lending" money for free is not factually correct.

 

[alcoholbob]

I don't need youtube.edu to explain QE. However, what I am interested in is knowing how people think that this is massively benefitting the banks by "giving" them free money in a huge amount.

Gov't sells treasuries, bank buys treasuries, fed buys treasuries. The bank gave money to the gov't and the fed prints to give it back. Did the bank get "free" money, or did it turn around and sell something it only held for a short period of time. Is it a loan?

If you buy a gallon of milk and the fed buys it for the exact same price, did the fed "give" you free money, or just purchase the gallon of milk?

Furthermore, when a bank originates a $100,000 mortgage they have to fund that mortgage, so they sell bonds, raise equity, and use deposits to give to the seller. That mortgage is then sold to Fannie or Freddie which turn around and sell it to the Fed. Did the Fed "give" money to the bank, or did they just purchase something of value which the bank paid for in the first place?

Now one could easily say that the Fed buying up assets has resulted in too-few assets around, thus, too much money chasing too few assets results in lower borrowing costs, both for companies (yield yield and inv grade corp debt rates are cheap!) and for actual consumers. The lack of assets (and capital) has resulted in excess reserves at the Fed, sure. However, to say the fed is "giving" or "lending" money for free is not factually correct.

Are you familiar with the concept of arbitrage? The price of bonds is effected by the yield. If certain banks (like Goldman Sachs) get an inside position on the treasury market there's a lot of profit to be made.

 

[LegendKiller]

Are you familiar with the concept of arbitrage? The price of bonds is effected by the yield. If certain banks (like Goldman Sachs) get an inside position on the treasury market there's a lot of profit to be made.

I know the price of the bond is affected by yield, in fact, I work in the bond markets.

There is so much money to be made that FICC is being downsized at almost every major bank.

 

[Dari]

I don't need youtube.edu to explain QE. However, what I am interested in is knowing how people think that this is massively benefitting the banks by "giving" them free money in a huge amount.

Gov't sells treasuries, bank buys treasuries, fed buys treasuries. The bank gave money to the gov't and the fed prints to give it back. Did the bank get "free" money, or did it turn around and sell something it only held for a short period of time. Is it a loan?

If you buy a gallon of milk and the fed buys it for the exact same price, did the fed "give" you free money, or just purchase the gallon of milk?

Furthermore, when a bank originates a $100,000 mortgage they have to fund that mortgage, so they sell bonds, raise equity, and use deposits to give to the seller. That mortgage is then sold to Fannie or Freddie which turn around and sell it to the Fed. Did the Fed "give" money to the bank, or did they just purchase something of value which the bank paid for in the first place?

Now one could easily say that the Fed buying up assets has resulted in too-few assets around, thus, too much money chasing too few assets results in lower borrowing costs, both for companies (yield yield and inv grade corp debt rates are cheap!) and for actual consumers. The lack of assets (and capital) has resulted in excess reserves at the Fed, sure. However, to say the fed is "giving" or "lending" money for free is not factually correct.

I always thought the complaint was that the Fed would print money and lend it to banks. The banks would in turn buy ultra-safe treasury bonds. In effect, one arm is supporting another with the banks acting as an intermediary. People see conspiracy but there really isn't any.

What I DO have a problem with is the Federal Reserve buying Treasury bonds. That should NOT be happening but it is. It's as if government has forgotten what fiat money is.

 

[Attic]

The Fed reinflated the housing market by printing money to do so. The nitty gritty is that the Fed printed trillions of dollars to buy Morgate backed securities from the big banks.

This allowed the big banks who were sitting on a disaster of worthless morgate debt to sell that worthless morgate debt at much much much higher prices than they otherwise would have if the Fed was *not* printing money (trillions) with which to buy MBS hand over fist from the big banks. It was a huge, massive, unprecedent bailout, and maybe it will just work. Problem is that it was heads they (banks) win, tails we (taxpayers) lose. Obama spot on with that. Justice department has done fuck all with bringing most of the involved to justice though. They are however fining 10's of billions of dollars to the big banks and adding that to treasury coffers.

If you look close you realize the toxic debt of the Big banks was shifted to the taxpayers but the big banks basically named their price on the toxic debt they were allowed to offload. If housing crashes again then the Fed now takes the hit and if busted it gets bailed out by Treasury.

So that's part of what folks were upset about, the big banks got us into the mess and then got bailed out, and they made a ton of money (upper management mostly). Now the big banks are still in some trouble, layoffs and such. Management is still doing quite well thanks to bonus money.

 

[MongGrel]

Obama has been asking for infrastructure, but the Republicans just rather toil for their masters and kiss their rings. Biden laments the infrastructure all the time, but unfortunately the Republicans are scared of the president's black face. The Republican seems comfortable with squalor. Earthquakes shaking cities east to west from fracking. A black morass in the Gulf of Mexico. Poisoned water in every corner of the country. Investment solar tech is skewered as liberal fantasy and china just goes and gets it done.

The right wing is simply in the way. They been in the way for decades now, since Nixon really. Can't be much longer we have to deal with them though. Once we run them down and fill them with holes this country will boom.

I'd say you have a good point actually, and the US has been doing it a long time now.

China basically has taken the idea and just ran with it now.

 

[LegendKiller]

The Fed reinflated the housing market by printing money to do so. The nitty gritty is that the Fed printed trillions of dollars to buy Morgate backed securities from the big banks.

This allowed the big banks who were sitting on a disaster of worthless morgate debt to sell that worthless morgate debt at much much much higher prices than they otherwise would have if the Fed was *not* printing money (trillions) with which to buy MBS hand over fist from the big banks. It was a huge, massive, unprecedent bailout, and maybe it will just work. Problem is that it was heads they (banks) win, tails we (taxpayers) lose. Obama spot on with that. Justice department has done fuck all with bringing most of the involved to justice though. They are however fining 10's of billions of dollars to the big banks and adding that to treasury coffers.

If you look close you realize the toxic debt of the Big banks was shifted to the taxpayers but the big banks basically named their price on the toxic debt they were allowed to offload. If housing crashes again then the Fed now takes the hit and if busted it gets bailed out by Treasury.

So that's part of what folks were upset about, the big banks got us into the mess and then got bailed out, and they made a ton of money (upper management mostly). Now the big banks are still in some trouble, layoffs and such. Management is still doing quite well thanks to bonus money.

It wasn't really the big banks that were in trouble. It was the pension/mutual funds and Fannie and Freddie that were in the most trouble in total dollars of exposure. Furthermore, the amount of risk to the downside for nearly all homeowners in the last 20 years was massive, not just for those who wanted to sell houses to buy a new one, or get out of an underwater mortgage, but to those who needed to sell for nest-egg purposes.

A massive crash that was uncontrolled and unmitigated would have blown a hole of epic proportions in the wealth of the country. The deflationary spiral would have crushed us.

You underestimate the secondary and nth order of effects.

 

[LegendKiller]

I always thought the complaint was that the Fed would print money and lend it to banks. The banks would in turn buy ultra-safe treasury bonds. In effect, one arm is supporting another with the banks acting as an intermediary. People see conspiracy but there really isn't any.

What I DO have a problem with is the Federal Reserve buying Treasury bonds. That should NOT be happening but it is. It's as if government has forgotten what fiat money is.

No, the Fed doesn't lend money to banks to buy treasuries, that isn't how QE works.

The primary dealers buy bonds from the US Treasury and the Fed buys them from the banks. The Federal Reserve Act specifically prevents the Fed from buying bonds directly from the Treasury. Sure, the banks *can* profit in a risk-free way (arb) from such passthrough, however, the profit would be minuscule even in the terms of the banks. It would require a wide bid-ask spread which there really isn't any for Treasuries. Even if there is a 1bps spread, that means that for every month that the Fed buys $35bn, the banks get $3.5mm in profit. With 22 prime dealers that is absolutely nothing.

 

[Dari]

No, the Fed doesn't lend money to banks to buy treasuries, that isn't how QE works.

The primary dealers buy bonds from the US Treasury and the Fed buys them from the banks. The Federal Reserve Act specifically prevents the Fed from buying bonds directly from the Treasury. Sure, the banks *can* profit in a risk-free way (arb) from such passthrough, however, the profit would be minuscule even in the terms of the banks. It would require a wide bid-ask spread which there really isn't any for Treasuries. Even if there is a 1bps spread, that means that for every month that the Fed buys $35bn, the banks get $3.5mm in profit. With 22 prime dealers that is absolutely nothing.

I never said they lent them money to buy treasuries. I said that was the complaint (win-win for government since banks are scared to invest in anything but treasuries). But that was back in 2012. Haven't heard about it since.

As for your 2nd paragraph, I don't think they should be buying it period. It doesn't pass the smell test and it's just bad on so many levels. Someone could make it policy and it'd be a guaranteed way for the government to spend, with banks acting as the happy middlemen. The Federal Reserve should not be in that market.

 

[Attic]

It wasn't really the big banks that were in trouble. It was the pension/mutual funds and Fannie and Freddie that were in the most trouble in total dollars of exposure. Furthermore, the amount of risk to the downside for nearly all homeowners in the last 20 years was massive, not just for those who wanted to sell houses to buy a new one, or get out of an underwater mortgage, but to those who needed to sell for nest-egg purposes.

A massive crash that was uncontrolled and unmitigated would have blown a hole of epic proportions in the wealth of the country. The deflationary spiral would have crushed us.

You underestimate the secondary and nth order of effects.

I disagree on most that stuff, I know you're in bonds and strongly respect that viewpoint as a result.

I know a few guys who are massively short treasuries, and they are too smart, and they are getting killed.

From my POV it was a large bubble and it popped. Deflation has never taken down a currency. Citi was going down, probably should have. Other big banks failed and all were heavily exposed to toxic mortgage debt.

No free lunch on the bailout, whether it had to be done or not. We are now sitting in another bubble, it will pop as they always do. Equity valuations are higher now than they were during the last crash and if the central bank behavior from OP is to be believed we have some fear of how non market forces are pushing us towards the edge again. Central bank interventions create problems first, solve them second if at all IMO. On the ride there are huge sums of money to be made for the connected. Wealth inequality is surging since last crash, I'm seeing same symptoms since then playing out while the Fed continues to push on a string as far as middle class is concerned.

 

[LegendKiller]

I disagree on most that stuff, I know you're in bonds and strongly respect that viewpoint as a result.

I know a few guys who are massively short treasuries, and they are too smart, and they are getting killed.

From my POV it was a large bubble and it popped. Deflation has never taken down a currency. Citi was going down, probably should have. Other big banks failed and all were heavily exposed to toxic mortgage debt.

No free lunch on the bailout, whether it had to be done or not. We are now sitting in another bubble, it will pop as they always do. Equity valuations are higher now than they were during the last crash and if the central bank behavior from OP is to be believed we have some fear of how non market forces are pushing us towards the edge again. Central bank interventions create problems first, solve them second if at all IMO. On the ride there are huge sums of money to be made for the connected. Wealth inequality is surging since last crash, I'm seeing same symptoms since then playing out while the Fed continues to push on a string as far as middle class is concerned.

Not all mortgage debt was toxic, most was just caught up in the bubble and was affected on the margins. The problem with the mortgage debt was multifold and ranged from nest eggs to employment friction. The banks could have gone under and the problem would have been far worse for main street.

How?

Let's take the place I worked. We had a $6bn ABCP multi-seller conduit in place. During the crisis we couldn't fund it in the US CP market, at all. Even overnight, even at 2% overnight interest rates. What did we have in our conduit? Trade receivables for industrial companies, small business loans/leases, agriculture loans, agriculture leases, agriculture dealer floorplan, prime auto loans, small business loans. Bread and butter type stuff. However, we couldn't fund it. So the bank had to fund it on balance sheet.

What would have happened if the bank had gone under? $6bn of corporate assets would have lost funding, overnight. Those assets funded farmers, small businesses, multi-national corporations, everybody. Why would they have gone under? Because some DBs decided to use the money markets for their own securities arbitrage and a place to shove CDO^2s and icelandic bank bonds.

But it would have had a far-reaching impact. The whole thing would have fallen like dominos. The *only* thing that saved the ABCP market was CPFF, a Fed program to fund CP. It started liquidity again. The second thing was TALF - it started the ABS term market. Why did ABS shut down? Because people never knew if it was "the next shoe", even though pretty much no ABS deals defaulted. It didn't fund a bunch of trash, but was affected nonetheless.

Until TALF the market was shut down. A company like Avis couldn't get funding in the ABS term market, hence its stock price going from mid-teens to $.34. They almost went bankrupt, as did Dollar-Thrifty and Hertz. Even Enterprise, despite not being an ABS issuer, was affected.

Imagine if those 3 companies had fallen. That's tens of thousands out of work.

Then how many of those tens of thousands would have defaulted on mortgages?

It would have been a brutally vicious cycle and not all of it just because of subprime mortgages. Citi might have failed, but then their conduits were maybe 60bn in total. Ouch. Lehman and Bear weren't big players, so it wasn't nearly as big of an exposure.

To say it was just banks at risk is a logical fallacy perpetuated by people who either don't want to know the truth as to how our financial markets are interconnected, don't know because they haven't researched it, or don't care because they refuse to see reality.

It's the world we live in now.