Caput Lupinum said:
In todays dysfunctional, completely irrational markets, bad news is considered good as it means the Fed is less likely to taper QE but if you're looking for a date to pick for the whole thing to come crashing down then spin the wheel and you may get lucky. I think the most prominent issues at this very moment are the volitility in the Japanese markets, the next FOMC meeting where the slightest indictation that the Fed will taper QE will trigger a mass sell off of government bonds around the world and the Chinese banks lack of liquidity
I didn't say that the whole thing would crashing down. I said that the US side, that is since a couple years trended 'positive' in a relative fashion to the rest, at some point should trend to 'negative'. When the indexes/price levels became so high that the other side will appear as less risk, again in a relative fashion.
So not a crash, not the end of the world, just a trend reversal.
About government bonds, it's precisely by purchasing and selling government bonds on the open market, that a central bank directly controls the reserves pool within the wide banking system, as to control the level of lending, and thus price increasings / inflation. This is the reason for the large pool excess reserves that came into existence in 2008.
An indirect control is along the discount rate / window, but when that rate is close to zero, and negative rates may 'awake' too many, they control inflation throughout the bonds.
It's one or the other, either they target a discount rate, and accept the consequences for the narrow monetary base, either they target a certain monetary base and accept the consequences for the discount rate. In the seventies the Fed used the discount rate as control method, causing the requirement for more reserves than the monetary base allowed, which forced the central bank to increase the rate, which is the reason behind the constant exceedings of the targeted discount rate.
Since 2008 they chosed the other way, by direct control of the monetary base, with the purchase and sale of government bonds.
So, this is just a choice based on changed circumstances. If the Fed stops that reserves control method, it will just switch back to the rate method, so starting or ceasing that 'Quantitative Easing', is actually a nothingsayer that is hype-tagged as like it means something. QE didnt cause massive general price increasings. QE's end won't cause massive general price drops, except for the stuff that is hype-tagged with it. What actually is "Quantitative Easing"? A propaganda title. Trying to make those 'evil speculators' willing to pay bloated prices due to a frontrun ahead of them, while its end is trying to make the 'evil speculators' fear enough to make them willing to sell at low prices.
As of now, I look at QE as a scam that was intended to trigger a multiyear cycle in order to lure bank savings towards overpriced (by the frontrun) commodities and indexes. I trapped in it. Not again. What matters is a balance that, despite the gazillion balances on the central bank sites, you have to calculate yourself. The net monetary base, with 'net' brought by subtracting excess reserves. And that one justifies 2008 average prices +40%. Not +400% like we have seen in some commodity cases. $18-20 silver is well possible, if it isn't in this cycle (the Comex silver futures sat tuesday on a 16 years record low position), it will be in a next one, after again another batch current silver owners "got out" at a higher price level than today. I bought a month ago when spot was $21. Next target $20. See, markets aren't 'irrational'. Everything has a reason, and what appears as 'irrational' is just because it was caused by scams/misleading. Some see a 'functioning' market as a market where they get somebody elses something for their nothing. Says enough.
