Central Banks Pandemic Response

Posted By Darren Winters on Jun 6, 2020


Central Banks Pandemic Response

The central banks pandemic response to the great lockdowns of 2020 was a lot more of the same, massive liquidity creation to finance a multi-trillion dollar asset-purchase program, known as quantitative easing QE.

A coordinated global monetary policy is now underway with post-pandemic QE to infinity being the central banks pandemic response

QE max is being deployed in cahoots with the world central banks to fend off a multiple asset burst triggered by the great pandemic lockdown.

The central banks, market planners, have effectively banned price discovery, arrested and caged the bear market by pumping trillions of fiat currency into the system to prevent asset deflation, collapsing asset prices, synonymous with an economic depression.

Front loading the central banks asset-purchase program has again become the best game in town to achieve alpha returns. 

The fundamentals are irrelevant again, as the central banks pandemic response is QE max and the spotlight is back on what the central banks are buying, albeit the magnitude of their purchases

Central banks pandemic response

Let’s start with the Fed, the world central bank by default has been busy ramping up its QE program with its balance sheet swelling to nearly $7 trillion since the outbreak.

But back in 2018, all the talk was quantitative tightening, remember that was supposed to be “like watching paint dry” as the Fed began reducing its balance sheet, which was set to gradually increase to $50B per month, then the Fed hikes rates one too many in December to 2.5 percent, December 2018 and stocks tank. Fast forward and Fed fund rates have been cut from 2.5 percent in December to zero rates and QE has grown exponentially.

The European Central Bank ECB €750 billion Pandemic Emergency Purchase Program (PEPP) was focused nearly all on government bonds where it purchased €186.6 billion of public-sector securities using the program.

The ECB disproportionately bought Italian and Spanish sovereign bonds, thereby reducing the spread between peripheral sovereign bond yields. 

The Bank of England (BOE) has adopted policies in tandem with other major central banks pandemic response to the  great lockdowns

So since the beginning of the pandemic, the BOE has cut rates twice from 0.75% to 0.1%.

Moreover, the BOE announced £200 billion ($247.55 billion) of additional QE, bringing its bond-buying program to a total of £645 billion. 

The central banks pandemic response to great lockdowns has been as expected rate cuts and QE max sending the central banks balance sheet purchases exponentially higher

In a few words, the central banks pandemic response means that the bull market could have been kept artificially alive, albeit in the short-medium term.Don’t fight the Fed and its central bank cohorts could still have some life.

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