Central Bank Cheap Money Now A Global Contagion

by: Gregor Gregersen
Summary

Global asset prices are inflated by central banks' cheap money.

2018 will be a record year for buybacks in US stock markets.

The Fed's academic economic models will not alert them to the next financial crisis.

There is more tinder today to light a bigger financial crisis compared to 2008.

Former Dallas Fed insider, Danielle DiMartino Booth spoke with SBTV about the inner workings of the Federal Reserve and how the Fed missed the train wreck which resulted in the 2007 financial crisis. Without being alarmist, Danielle presented a factual view of how leveraged and indebted our financial system has become.

Danielle is the CEO of Quill Intelligence (https://quillintelligence.com) and author of 'Fed Up: An Insider's Take on Why The Federal Reserve is Bad For America'.

She points out that loose monetary policies of global central banks have resulted in huge amounts of cheap money looking for a home worldwide. This has caused asset prices from real estate to stock markets to rise. Money printing by the ECB and the BOJ now dwarfs the Federal Reserve's own quantitative easing.

US companies are also using this central bank cheap money for stock buybacks, thus inflating their stock prices. 2018 will be a record year for buybacks with $850 billion in buybacks alone.

The financial crisis of 2008 saw the mortgage market outsize the US treasury market. The collapse of this one market was sufficient to put the world in recession. Today, there is more tinder to light a bigger financial crisis if we add up all the asset classes today whether it is junk bonds, leveraged loans or trillion-dollar 'investment grade' bonds.

Discussed in this interview:

  • 04:41 How did the Federal Reserve miss the 2007 financial crisis?
  • 08:24 Were the bailouts of failing banks avoidable?
  • 10:08 Why Lehman Brothers was not bailed out?
  • 13:38 Money printing has become an international contagion.
  • 16:36 Stock markets propped by stock buybacks.
  • 20:11 Will the Fed blow up the economy as it unwinds its balance sheet?
  • 22:59 The 'academic' problem of the Fed.
  • 23:40 Inversion of the yield curve.
  • 25:48 There is more 'tinder' to light a financial crisis now than 2007.
  • 27:35 How does the Federal Reserve view gold?
  • 29:40 Dollar's reserve currency status to stay?
  • 34:35 Can we ever trust the Fed?
  • 37:31 Will we see the Fed come out with a crypto coin?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.