Draghi and
Bernanke’s Worst Nightmares Are About to Unfold
‘Ben Bernanke and Mario Draghi must be
absolutely terrified.
These two men, in the last two weeks, have both
initiated open-ended bond buying programs. The purpose of these programs, aside
from keeping insolvent banks in business, was to scare the markets into
believing that no matter what happens, the Central Banks will be able to step
in and support the financial system.
From a philosophical standpoint, this was
Draghi’s and Bernanke’s “all in” moment. I won’t say they they’ve gone
“nuclear,” as they have yet to truly monetize everything, but they’re
not far from that.
And they’ve both failed.
Spain, which I’ve been warning will bring about
the break-up of the Euro, saw the yields on its ten-year bonds break back above
6% yesterday. This is absolutely extraordinary. It indicates that within two
weeks of the ECB announcing it’s going to do an “unlimited” bond purchasing
plan, Spanish bonds are once again imploding.
Indeed, if you analyze the Spanish ten-year
yield chart from a technical analysis perspective, you’d say that it’s bounce
off former resistance (indicating that it’s now support) and is ready for the
next leg up (north of 7% again).
This is Game Over for the ECB.
The EBC cannot announce an even larger program
now as that would completely destroy its credibility in the markets.
Congratulations Mario Draghi, the markets were
intimidated by your promise of unlimited bond buying for a total of less than
two weeks.
On the other side of the pond, Ben Bernanke is
rapidly approaching his own Game Over moment.
The US Federal Reserve bought roughly three quarters
of all Treasury issuance last year. Let that sink in for a moment. Roughly
$0.74 out of every $1 in debt created by the US in 2011 was bought by the US
Fed… not by the bond market, not by foreign countries, but by our own
Central Bank.
Despite this massive intervention, the US
economy (according to the ECRI) has officially re-entered a recession. This is
why the Fed announced QE 3 now, because Bernanke is growing truly desperate,
both in terms of losing control of the markets and the potential of
losing his job if Mitt Romney is elected President.
So the Fed chose to monetize Mortgage Backed
Securities this time around. And the result is that the US Treasury market is
tanking. If it takes out its trendline, things will get very ugly very fast.
Here’s a thought… what happens if the Treasury
market begins to implode despite the Fed buying roughly 75% of all
Treasury issuance?
GAME OVER for Bernanke and the Fed.
The only option left would be to monetize everything,
which would mean hyperinflation (all hyperinflationary episodes have been
created by monetization of deficits… you can pull this off until you lose
credibility… at which point you suffer a currency crisis).
Congratulations Ben Bernanke, you’ve managed to
screw up the capital markets so badly that the US is on the verge of its own
European-style debt crisis… despite you taking over the entire interbank
money-market and nearly all US Treasury issuance.
Folks, this is the reality we’re dealing
with. The ECB and Fed have gone “all in” in their efforts to stop the debt
implosion… and they’ve failed. All they’ve done is unleashed an even more serious
inflationary storm than the one we were already facing.
The time to start preparing is now. The
printers are running. The Great Currency Debasement has begun. Some folks will
walk out of this mess winners. Most will walk out as losers.
At Phoenix Capital Research, we’re taking steps
to insure our clients are among the winners. We are currently preparing a
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To find out more about Private Wealth Advisory and get on board for this Special Inflation Portfolio the
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Phoenix Capital Research’