Why QEs *must* continue.
If rates rise
changes in outstanding ‘interest rate swaps‘ means derivitive mkt disaster.
ie iaw w the interest rate rise
JPMs & GSs variabl rate payout would rise
abov the rate they are receiving
from the fixd rate instrument they sold
resulting in *major* losses
affecting the US financial system
also, It is a fact that
in the US and Europe tax revenues do not cover
retirement of debt and govt spending;
so, borrowing to cover bond rollover and new expenses,
by issuing bonds, is required.
“Imagine what the US economy would look like
with the base rate set to Italian levels of six per cent.
Asset values from bonds to stocks to real estate would be decimated.
[cause of inability to pay off the debt at such hi rates
and the fall in asset values]
depression would set in.”
Therefore, to avoid such a rate rise
printing *must* continue
so so that govt can buy back its own bonds
at higher prices than other bond buyers would bid
ie hi bond prices = lo int rates.
ie the deficits must be monitized
The handwriting on the wall:
1. “The fed has become a significant buyer of debt,
purchasing some 75 percent of US treasuries last year
because there were no other buyers.”
2. LTRO, the ECB‘s longer-term refinancing operation
[which has now loaned out above a trillion dollars]
lends banks cash at about 1%
by loaning against sovereign bonds
that those banks currently hold,
so the banks can, in turn, lend to their domestic governments
by buying newly issued bonds.
The question is not wether QEs [printing] will continue,
the question is,
Is there a way to get off the merry-go-round ?