‘No Liquidity!’ Global QE Bubble Is Finished

The trans-Atlantic world’s financial press is ringing with cries about the “disappearance of liquidity in the bond markets.” Among many such complaints, one in the Wall Street Journal stands out because it tries to blame the ghost of Glass-Steagall as the cause.

Simultaneous central bank moves are occurring to accelerate “quantitative easing” money-printing, involving the European Central Bank and the Bank of Japan and IMF — out of fear of an imminent euro breakup.

Not just “regulation,” then, but the threat of resumed Glass-Steagall regulation, has brought the global secondary bond markets to the point of collapse? Criminal, universal-banking monsters, completely unregulated, are the only source of liquid capital markets?

The truth as to how — after injections by the central banks of $13 trillion in liquidity into the securities markets since 2009 — those markets now could “lack all liquidity,” is very different. Wall Street and the City of London always claim, when they are bankrupt and insolvent, that they are only “illiquid.”

The central banks’ quantitative easing or “QE” bubble has reached its top, and now has nowhere to go but down, fast. The clearest sign of this was the “shocking” announcement May 19 by ECB Board Member Benoit Coeuré, that the ECB will immediately try to accelerate its QE purchases in June beyond EU60 billion a month, to EU70-75 billion in June. While that QE program at first drove EU government debt interest rates down well into negative territory, taking corporate bond rates along, interest rates then suddenly rebounded sharply in May — not what the ECB expected.

This means the prices of these bonds in the secondary markets suddenly fell, throughout the month, and the ECB’s alarm bells went off. For seven years, central bank money-printing has dominated the secondary security markets worldwide, constantly increasing the prices (lowering the interest rates) of debt instruments held by banks and financial non-banks, and creating the speculators’ dream for those financial institutions: oceans of liquidity, and virtually automatic big profits.

If that run has now ended, a bubble of tens of trillions, printed by the central banks, is entering a stage of collapse. A Greek default “trigger” is just one possibility. So not only did the ECB decide to accelerate money-printing immediately. The IMF told Japan on May 22 that “BOJ needs to stand ready for further easing,” according to the Wall Street Journal.

Bank of Japan QE has for years been associated with bursts of hot-money investments in European sovereign and corporate bonds.