by Gregory Mannarino, Traderschoice.net
Today, we stand on the threshold of a massive shift in central bank monetary policy, which can be described in one word: INFLATE.
Every possible reason, real or engineered, is being utilized to allow world central banks – none more so than the Federal Reserve – to inflate on an epic scale.
World central banks are inflating beyond anyone’s wildest imagination. Yet, not a word is being spoken about this on a single mainstream financial news network.
While it’s true that in the United States, it is commonly known the Fed has been in the “rate-suppression business” full-bore since the market meltdown of 2008, and the dynamics of this are evolving. Now, the new acronym being thrown around is “YCC.”
What is YCC?
YCC stands for “Yield Curve Control.” It is a mechanism whereby a central bank (the Federal Reserve in this case) targets either a specific part of the yield curve or the entire curve itself to regulate bond yields. Thus, this alters the shape of the yield curve. YCC is done by allowing a central bank to buy and/or sell bonds in any amount they feel is necessary to keep the yields fixed as close as possible to a specific target price.
YCC is yet another scheme, on a massive scale, to rig the debt market.
YCC allows the Federal Reserve to create any amount of cash needed to implement it.
Moreover, there is another effect of YCC: a “multiples expansion cycle” in equity prices. This means investors are willing to pay more to own shares of stock. The end result is simple… the stock market inflates.
The Federal Reserve wants to implement YCC and will go to great lengths to achieve it.
For example, over the past few weeks, the market has witnessed considerable turmoil in the debt market itself, and bond yields have risen alarmingly. When the bond market reacts wildly, it hits stock prices, and investors get spooked. In fact, several Fed presidents have come forward expressing “concern” over the recent instability in the debt market. (For good reason – it’s a charade!)
The Federal Reserve is looking for any reason and will create reasons as well, to achieve their objective of FULL YCC: managing the entire yield curve and, henceforth, the overall market.
The debt market runs the entire show, so to speak, and it subsequently dictates how much someone is willing to pay for an asset.
As an example, low rates inflate real estate prices. Low rates also create a multiples expansion cycle in stock markets. YCC would serve to hyper-inflate real estate and stock prices while, at the same time, devaluing the dollar.
The Goals of the Fed
The Federal Reserve knows exactly what it is doing and how to get there.
The Fed wants to vastly inflate its balance sheet, buying as many assets as it can along the way.
The Fed wants to control asset prices.
The Fed wants to be the lender and buyer of last resort, and YCC is yet another mechanism to make that happen.
