Tags: Stockman | central banks | bond | fincl

Stockman: Global 'Mania' in Govt Bonds Is Veering Toward Disaster

By    |   Thursday, 23 April 2015 06:40 AM

The world's central banks have managed to brew up a "planet-wide mania" in government bonds that are trading at dangerous negative yields and could lead to a meltdown, according to David Stockman, White House budget chief in the Reagan administration.

Stockman said the level of complacency in world financial markets is "downright astounding — even stupid."

He cited data from BlackRock Investment Institute and Thomson Reuters that there are now $5.3 trillion in government bonds trading at negative yields, mostly in Europe, with already-low U.S. Treasury yield levels being pushed lower by the strength of the dollar.

"The central banks are just mechanically and blindly pushing on a string of monetary expansion that is levitating not the main street economy but only financial asset prices in the canyons of Wall Street," Stockman wrote on his Contra Corner blog.

Since 2000, the world's central banks have expanded their collective balance sheets from $2 trillion to $22 trillion, he noted, "causing the greatest falsification of financial prices in recorded history."

"This has made cowards and crooks out of the political class and reckless gamblers out of the financial class. That's the real meaning of the absurd position that banks with spare cash must pay another bank to assume their excess monetary digits or that governments should be paid for the privilege of issuing debt that they can never repay."

In his view, the ultra-loose monetary policies pursued by the Federal Reserve and its lap dogs among other central banks is not going to have the hoped-for effect of goosing GDP and aggregate demand for goods and services.

"Self-evidently, the power-intoxicated central bankers of the world have no intention of stopping — meaning that only an eventual thundering crash of the system will bring their madness to an end."

Investors might believe the Fed, led by Janet Yellen, will manage to keep interest rates low in order to try to avoid a bond market crash — in effect, a "Yellen put" to prop up the bond market is in effect, in Wall Street parlance, Barron's reported.

The financial magazine quoted Jim Kochan, Wells Fargo Fund Management's chief fixed-income strategist, as writing:

"The FOMC [Federal Open Market Committee], under her leadership, does not want bond yields to rise sharply because officials feel that would weaken an economy that is still far from robust. Higher bond yields would also push up mortgage rates at a time when the housing sector is still not very healthy."

But Kochan casts doubt on whether Yellen's effort will be successful, just as previous similar Fed machinations did not pan out.

"How bonds react to Fed tightening seems to depend upon where those yields are when the market learns that Fed policy is about to change. Today, with investment-grade bond yields at exceptionally low levels, the Fed might have no more success with the Yellen put than it did with its predecessors."

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
StreetTalk
The world's central banks have managed to brew up a "planet-wide mania" in government bonds that are trading at dangerous negative yields and could lead to a meltdown, according to David Stockman, White House budget chief in the Reagan administration.
Stockman, central banks, bond, fincl
480
2015-40-23
Thursday, 23 April 2015 06:40 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved