mishtalk.com / Mike “Mish” Shedlock / September 7, 2016
In efforts to spur lending and increase the rate of inflation, central banks in the US, EU, and Japan have engaged in dubious tactics.
Every time their actions fail, they double down in failed strategies.
The Bank of Japan and ECB are now running out of bonds to buy. To circumvent the imagined problem, the former is already buying equities. Will the ECB follow? Does it even matter?
Let’s address those questions with an eye on social mood.
The Wall Street Journal writers Brian Blackstone and Tom Fairless ask Could the ECB Start Buying Stocks?
By failing to properly analyze social mood, they come to the wrong conclusions.
Some central banks already invest in equities. Switzerland’s central bank has accumulated over $100 billion worth of stocks, including large holdings in blue-chip U.S. companies such as Apple and Coca-Cola.
If the ECB decides to raise its stimulus by extending its current bond program, as many analysts expect, fresh questions will be raised about how it will continue to find enough bonds to buy. The bank is already purchasing €80 billion ($89.2 billion) a month of corporate and public-sector bonds to reduce interest rates across the eurozone. Its holdings of public-sector debt reached €1 trillion last week, the ECB said Monday.
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