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By Gregory Mannarino, TradersChoice.net
Central Banks are sending a BIG message to the stock market as of late which reads like this: “WE GOT YOUR BACK! AND WE COULD NOT POSSIBLY CARE LESS ABOUT SURGING INFLATION.”
Just two weeks ago the European Central Bank/ECB began an UNLIMITED bond buying program encompassing the entire Eurozone. Since that time, the ECB has stated that it is prepared to do more (how the ECB can do more than unlimited remains a mystery to me). This action by the ECB has been followed up by the Federal Reserve, although no official announcement has been made.
So how do we know that the Fed has in fact followed the ECB unlimited bond buying spree? Simple. Just follow the money! Bond yields, more specifically the 10-year yield.
In just the last 2 weeks, in fact ever since the ECB made their unlimited bond buying program known, the U.S. 10-Year yield has cratered nearly 90 basis points! In order for the 10-Year yield to drop so dramatically in such a short amount of time, an enormous amount of debt buying must take place.
Let’s look a bit deeper here…
Who benefits by artificially suppressing bond yields? And why?
NUMBER ONE—Central banks (in this case the Federal Reserve). The power of ANY central bank resides in its ability to issue debt, and therefore inflate—the more debt a central bank can issue the stronger they become.
NUMBER TWO—By artificially suppressing yields, it creates an environment of risk! The stock market goes higher.
NUMBER THREE—By pushing stock prices higher it gives the illusion of a prosperous economy, and the general public gets duped.
The downside to all this debt buying is this—it is massively inflationary which hurts consumers.
Central banks, none more so than the Federal Reserve and the ECB, do not care at all about surging inflation as long as it keeps the stock market propped up. In fact, both the Federal Reserve and the European Central Bank continue to do everything in their power to assure that inflation will continue to rise.
Central bank issued Magic Money, which is relentlessly and by design hyper-fueling the current global debt crisis, WILL NOT STOP until a moment of “maximum saturation” occurs. A maximum saturation moment is achieved when surging inflation overcomes a central bank’s ability to issue more debt—then the system collapses—just like a Ponzi Scheme.
A collapse of the current system will result in a liquidity crisis and all transactions stop, leading to a currency crisis/collapse of the system—by design. Then a new system will be introduced—one with extreme control.