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EIR report: QE Savages Real Economy

Aug. 7, 2016 (EIRNS)—According to new estimates by EIR, the four largest central banks in the world have taken just under $16 trillion in assets off the books of private banks and onto their own, since the U.S. Federal Reserve began the great money-printing game known as "quantitative easing" in 2009. The Fed, European Central Bank (ECB), Bank of England (BOE) and Bank of Japan (BOJ) now own about one-quarter of all government debt in the world, and have dragged one-third of all government debt in the Europe, Japan and the United States into the unprecedented territory of negative interest rates.

Moreover, these central banks are continuing to increase "quantitative easing" at a rate of about $2.4 trillion per year, a higher rate than at any prior point after the 2008 bank panic and economic crash. And although the Fed is no longer "easing," U.S. banks and large corporations are continuing to suck up new central bank money through their London, European and Japanese branches.

Today’s Financial Times, in "The End of the World as We Know It?" by Michael Power, says that the central banks "have turned the norms of finance on their heads." It notes that one very serious effect of this is that capital investment by business is at or near record low levels across the trans-Atlantic.

"Some 30% of the global issuance of sovereign bonds have negative yields," Power reports. And,

"As Morgan Stanley has noted, ‘Over the past 17 years, 10-year government debt in the U.S., Germany, the U.K. and Japan has produced a better return than the local equity market, with lower volatility.’"

This is because as bond interest rates have gone surely and steadily downward for a decade, to zero and below, and to near zero even for the bonds of large corporations, the market "price" of those bonds has just as surely and steadily increased, making a perfect speculative market "outside the economies."

This fatal effect on the banking system has become clear since the 2008 crash. Big Wall Street- and City of London-centered banks have reduced their commercial lending into the economy, concentrated on investment-bank speculation in the bond and securities markets, and slipstreamed the central banks in the government bond markets to make reliable "profit"—and then store it as excess reserves at the same central banks. And their speculations in government debt securities have provided the collateral they’ve used and/or loaned for financial derivatives bets and the so-called third-party repurchase or "repo" markets. The big bank holding companies have all moved toward the model of Deutsche Bank, for which loans make up just 15% of its €1.6 trillion in "assets"—and which is now effectively bankrupt.