CENTRAL BANKS ARE RIGGING THE DEBT MARKET LIKE NEVER BEFORE

By Gregory Mannarino, TradersChoice.net 

Since my last article published here in the Trends Journal, we witnessed an unprecedented selloff in the debt market which led to an uncontrolled spike of the 10-year yield, and this spiking of the 10-year yield led to a steep drop in stock prices.  These events, with one triggering the other, caused both the European Central Bank/(ECB) and the Federal Reserve to now engage in yet more debt market manipulation. A move to an “emergency policy stance.” 

Immediately following the rapid and uncontrolled selloff in the debt market both here in the U.S. and in Europe, the ECB instituted an emergency monetary policy to prevent “fragmentation” of the debt market. This action by the ECB sparked the Federal Reserve to also act. The Federal Reserve is calling their action “unconventional means” to prevent disruption in the debt market.  

As a result of this unprecedented action by both central banks, bond yields across Europe and the U.S. have dropped, and more specifically the benchmark 10-year yield has normalized. This “normalization” of the 10-year yield has caused some cash to make its way back into risk assets/stocks, and world equity markets are seeing some inflows. The only question is how long will this last? 

The fact of the matter is this, the current actions being now taken by the ECB and the Federal Reserve are MASSIVELY inflationary, and they know it. With central banks now again buying debt, they must again create EPIC sums of cash out of thin air to buy it. What is happening here is yet again another round of quantitative easing—ON STEROIDS.  

Both the ECB and the Federal Reserve are rigging the debt market, keeping rates suppressed, all in an effort—which seems to be working so far—to inflate stock/equity prices. But it’s bigger than that… 

In my opinion what these central banks have done/are doing is just put a bandaid on a monumental problem, simply pushing off an eventual total meltdown in the debt market.  

Today global debt continues to surge higher, and it cannot ever stop, it is the way in which the system is designed to work… it’s a debt-based system. Moreover, despite this, there is not enough debt to allow the system to function—without continually and exponentially expanding the debt, the system immediately becomes illiquid. Once the system becomes illiquid, ALL TRANSACTIONS STOP.  

What central banks are desperate to try and avoid, for now, is an illiquid system. Every manner and method available to them will be utilized to keep the system able to find reasons to borrow more cash/create more cash and add it to the system. Wars, expansion of war, various disease processes, another crisis, ANYTHING to keep the machine liquid. 

So be ready for anything…