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|Subject: What Would Happen in the US if ECB and BOJ Ended QE? Tue Feb 14, 2017 9:42 pm|| |
|In October 2014, the Fed ended its QE program. Between October 2014 and September 2016, we saw a contraction in corporate earnings, which signifies that the end of the Fed’s QE program has created a liquidity problem in the economy (QQQ) (SPX-INDEX). This QE program also artificially inflated asset prices.|
The Fed ended its QE program, but the European Central Bank (or ECB) and the Bank of Japan (or BOJ) increased their asset purchase program. Europe (VGK) (IEV) (N100-INDEX) (VTI) and Japan (EWJ) are buying nearly $150 billion of their own bonds a month, which Gross thinks is very high.
Gross said, “A client asked me recently when the Fed or other central banks would ever be able to sell their assets back into the market. My answer was “NEVER.” A $12 trillion global central bank balance sheet is PERMANENT – and growing at over $1 trillion a year, thanks to the ECB and the BOJ.”
He also said, “Without that financial methadone, both bond and stock markets worldwide would sink and produce a tantrum of significant proportions. I would venture a guess that without QE from the ECB and BOJ that 10-year U.S. Treasuries would rather quickly rise to 3.5% and the U.S. economy would sink into recession.”
In the next part of this series, we’ll analyze Gross’s view on the US dollar.
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