Commodity Trade Mantra

A Wave of Quantitative Easing Programs by Central Banks on the Horizon

Quantitative Easing Programs

A Wave of Quantitative Easing Programs by Central Banks on the Horizon

With a gigantic wave of large quantitative easing programs by Central Banks; the ECB, BoE, Federal Reserve & China on the horizon, Markets should brace for a quantum jump in Equity & Commodity Markets in the second half of 2012. This wave could eventually also lead to a great downfall, not much later (2013) as nations will be immersed in massive debts to be paid for & overcome over the years to come as these programs (as proven) will not essentially cause a fundamental change as perceived. Extreme austerity measures would then be resorted to as an after effect.

Weaker Economic data is constantly being viewed by Markets as a Potential trigger for further stimulus measures, rather than an alert on impending doom & gloom. China is expected to relax the minimum reserve requirement ratio for banks again. The latest weak Economic data coming from the US will eventually lead to the much talked about & awaited QE3 (or money infusion with a new name) from the Federal Reserve in the coming months or closer towards the year end, due to the November Presidential Elections.

The European Central Bank (ECB) and the Bank of England (BoE) are both scheduled for a policy review meeting on Thursday. The ECB is likely to cut by 25 basis points its record-low interest rates, currently at 1%. The BoE may add some more & larger quantitative easing while keeping the benchmark rate unchanged at an all-time low of 0.5%. ECB will probably have to be a lot more aggressive because an interest-rate cut may have already been priced in by investors and may not have the desired effect of boosting asset prices. ECB can probably cut rates by as much as 50 basis points, and do more by announcing a quantitative easing program by buying sovereign bonds.

Encouraging Housing Data from the US should not be looked upon as a major Economy Booster as it no more plays the important role in the GDP as it did a few years ago & neither are these news any solid indicator of an improvising housing sector in the US. Housing sectors now accounts only for 2.3% of GDP as compared to a 6.3% in the pre 2008 times. Distressed sales also accounts for a larger share of the total housing sales rather than new home sales, which largely indicates the current state of this sluggish sector in the United States.

Cities and towns all over the United States are almost on the verge of a financial collapse.  Last week Stockton, California became the largest to ever declare bankruptcy, but the reality is that this is only just the beginning of Municipal debt crisis in the US. Stockton, California, said it will file for bankruptcy after talks with bondholders and labor unions failed, making the agricultural center the biggest U.S. city to seek court protection from creditors. More Reasons for further Quantitative Easing….

Since the Supreme Court decision on Obama-care finally being announced, Un-employment is expected to rise as small business owners will be pressed to reduce workforce because they will not be able to afford to keep them all under The Obama-care program.  It would be hard to imagine a more job killing law than The Obama-care. Many businesses will crumble without the requisite man-power. More Reasons for further Quantitative Easing….

The possibilities of significantly large civil unrest (as forecasted in mid 2011) to occur from 2013 onward are certainly there. A host of recent opinion polls have shown that anger and frustrations in the United States people are rising to unprecedented levels. European nations like Greece have already voiced their anger & frustrations in a small way. People all over seem to have lost all faith on the governing system. The ingredients are certainly there for an explosion.  Something somewhere just needs to be pushed over that little bit more and the fuse will be lit.

Euro-zone Debt Crisis: Since the onset of the debt crisis, the European rescue efforts & quantitative easing may have managed to save a few banks, but have so far failed in preventing acute recessions, lowering unemployment rates, or even decreasing anxiety & disparity in the Euro-zone nations.

Euro zone leaders agreed on Friday to bend their aid rules to shore up banks and bring down the borrowing costs of stricken members like Italy & Spain. Responding to quantitative easing pleas from Spanish and Italian leaders, who had threatened to block a package of growth measures, the euro zone agreed to let their rescue fund directly inject aid into Spanish banks from next year and buy bonds to support troubled member countries, to try and curb a regional debt crisis that threatens the single currency. Spanish Prime Minister Mariano Rajoy will find it tough to avoid asking for a full-scale sovereign bailout despite steps taken at an EU summit to help the country’s indebted banks and pressured borrowing costs. Investors and officials say the steps may not be in place quickly enough to stop the country needing more cash to keep the state afloat on top of up to 100 billion euros made available to fund the country’s banks. At least 40 billion euros is needed in the next few weeks to stop nationalized lenders Bankia, CatalunyaCaixa, NovaGalicia and Banco de Valencia collapsing, Spanish government sources say and it is not clear where that money will come from. Part of Spain’s problem is that the government, which has insisted it does not need more quantitative easing or a sovereign bailout, has sent a series of confusing signals about the state of public finances and the banking system. Rajoy has lost most of his credit with fellow European leaders and may find it hard to quickly shore up confidence.

Crucially, it was also agreed that a single supervisory body for euro zone banks, housed under the ECB, would be created by the end of the year, much faster than previously envisaged. Once this is operational, the bloc’s future permanent bailout fund, the European Stability Mechanism (ESM), would be able to recapitalize banks directly without increasing a country’s budget deficit, and without preferential seniority status. The latter concession could help Spain, which formally applied for up to 100 billion euros in assistance this week to recapitalize banks laden with bad debts from a burst housing bubble.

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