04/20/2017 - Martin Armstrong: Central Bank Quantitative Easing Programs And Government Spending To Determine Inflation/Deflation In Assets And In Consumer Prices

“One of the greatest monetary experiments in financial history has been the global central bank buying of government debt. This has been touted as a form of ‘money printing’ that was supposed to produce hyperinflation. That never materialized as predicted by the perpetual pessimists. Nevertheless, the total amount of Quantitative Easing (QE) adding up the balance sheets of the Fed, the ECB and BOJ is now around $13.5 trillion dollars, which by itself is a sum greater than that of China’s economy or the entire Eurozone ..  The withdrawal of the Federal Reserve (Fed), the European Central Bank (ECB) and the Japanese central bank from the QE programs will lead to an increase in yields on the bond markets sending the financing costs for the states higher. This is predicated upon the notion that people will continue to buy government debt. Governments have increased their spending sharply because interest rates were effectively zero and the central banks were buyers. Now comes the moment of truth .. Here comes the problem. The governments continue to borrow. With the central banks no longer buyers, then interest rates can rise faster than anyone expects because they will have to entice fresh buyers. If that fails to materialize, then we come to the Sovereign Debt Default crisis .. The negative effects of the balance sheet shortening of several central banks will mutually reinforce each other in 2018 and help to bring the financial crisis to a head for 2018-2020 .. The shrinking of the balance sheets represents the continued deflationary trend from a real economic expansion trend. The government will be competing for cash in an ever growing tighter economy. This will serve to demonstrate the unintentional impact of this entire unorthodox monetary policy experiment .. The inflation will be asset inflation – not demand inflation. So hold on – this is going to be the craziest ride in monetary history of human kind.”

The End of Quantitative Easing – Perhaps Now It Will Be Inflationary?