That's the signpost up ahead—your next stop, the Twilight Zone!
- Rod Serling, The Twilight Zone
Call it QE to infinity, modern monetary theory, magic monetary theory (H/T Zerohedge), whatever. Goldman Sachs has come out with a report; the Zerhohedge headline reads: Goldman Spots A Huge Problem For The Fed.
To summarize, the inflation of the Fed’s (and every other major central bank’s) balance sheet cannot end, as the volume of required Treasury purchases is overwhelming and will continue to overwhelm the market.
My working thesis regarding this corona hysteria is, and has been from the beginning, that financial markets were past the point of requiring a bailout. I have seen noithing that has caused me to change my view, and this Zerohedge piece fully supports it.
The first signposts were last fall when the overnight repo market interest rate hit 10% - meaning banks were not willing or not able to lend overnight to other banks. The Fed stepped in to settle things down, eventually.
The corona gave the pretext for what had to happen in any case: the financial system required bailouts to avoid illiquidity and insolvency. The Fed and its supporters knew that the people wouldn’t go for this scam again (recall the overwhelming pushback in 2008 / 2009), so they needed to do something to scare the hell out of everyone. Climate change was way too far out in the future – not personal enough. Enter the corona.
Now this doesn’t mean that there aren't other objectives or agendas. Forced vaccines, your papers, please, etc. I can think of a hundred possibilities – so, it is a target-rich environment. For those who never want to let a crisis go to waste, well, this is Christmas, New Year’s Day, winning the mega-millions lottery, and a twenty-first birthday all rolled into one.
So, what does all of this have to do with the Zerohedge article? The last few paragraphs tell the story:
"Can governments continue to borrow at such record levels? No," said George Boubouras, head of research at hedge fund K2 Asset Management. "Central-bank support is key in the massive bond buying we’ve seen for now. But if they blink then at some point, in the medium term, it will all likely unravel - with unforgiving consequences for some countries."
Ironically, this also means that an end to the coronavirus crisis is the worst possible thing that could happen to a world that is now habituated to helicopter money and virtually unlimited handouts, which however need a state of perpetual crisis.
"Once there is an end to the crisis in sight, they will be less and less willing to provide support and it will fall more on the street to absorb paper," said Mediolanum money manager Charles Diebel, who’s adding bond steepeners in anticipation of a coming inflationary supernova.
They “will be less and less willing to provide support,” only without a pretext. Hence, they need an ongoing pretext:
That, incidentally, would be the endgame for the current monetary regime, which is why anyone hoping that officials, policymakers and the establishment in general, will allow the coronavirus crisis to simply fade away, is in for the shock of a lifetime.
Read the last paragraph twice.
If it takes keeping half of the working class in the developed world unemployed (while sending the occasional $1200 check), so be it. And if it takes a few million or tens-of-millions of hunger-related deaths in the more poverty-stricken regions of the world, no problem. At the cost of a few hundred billion dollars and a few tens-of-millions dead, the bailouts to the financial system are in the multi-trillions.
So, I expect we are certain to face a second and third wave, or maybe the virus (or whatever it is) will morph into something else, or whatever. They have already moved the goalposts at least once: from “flattening the curve” to “finding a vaccine.” They will move the goalposts as often as necessary and as long as they can get away with it.
We are likely facing perpetual crisis mode until a major economic and financial reset is forced upon the inhabitants of planet earth.