Table of Contents
- Debt Monetization in the USA: Has The Fed Absorbed 90% of Treasury Issuance Since Last September?
- Wealth Inequality in the United States
- Goldman Sachs: Central Banks Gobble Up 20% of Global Gold Supply
- Mongolia’s Central Bank Buys 14 Tons of Gold in First 11 Months This Year
1. Debt Monetization in the USA: Has The Fed Absorbed 90% of Treasury Issuance Since Last September?
The US Central Bank is financing the US Government deficit spending through POMO and repo operations.
In August 2019, for the first time since the Fed ended QE in 2014, the Fed has started POMO (Permanent Open Market Operations) again. Through POMO, the Fed buys treasuries (i.e., monetizes US federal debt).
Through Repos, acting as a lender, the Federal Reserve buys treasuries as collateral under a simultaneous agreement at the time of the sale to repurchase the collateral at an agreed-upon price and time, which is usually the next day.
According to Daniel R. Amerman, since last September (i.e., within 3 months), the Fed has bought $437 billion of US treasuries, absorbing 90% of all treasury issuances over that time thus allowing the US Government to finance its debt at interest rates lower than those requested by the market.
What would the treasury yields be without the support of the US monetary authorities? And what will happen when such support ends?
The latter seems to be just an academic question, as the Fed, through its Chairman J. Powell, announced that they stand ready to increase support for financial markets and the federal government even beyond the $145 billion-per-month pace that they have established so far.
According to Embark Group’s CIO Peter Toogood on CNBC Squawk Box Europe, this money flood has led to an artificial bubble-like sentiment within the financial markets: „… all CTAs [call to action] have gone long, most macro funds are long, the biggest engines in London are as long as they can be… and vol is on the floor… Just keep going… until you don’t, until the music stops… I’m being incredibly flippant but for a very good reason… there is no logic to [buying risk assets like equities] other than to chase the gilded lily… it’s nuts! It’s insane… but it’s gonna carry on because the Fed is absolutely in hock to what they created… which is a monstrous beast of over-inflated valuation.”
Replying to the anchor mentioning earnings, Toogood notes that through this new wave of QE stocks quotations have detached themselves from fundamental parameters like earnings, as the following chart shows
2. Wealth Inequality in the United States
In 2013, the top 1% of the US population owned as many assets as the bottom 90%.
For 40 years straight, from 1978 until 2018, the top 1% of the US population steadily increased its share of the national earned income, while the bottom 50% saw its share of the national earned income steadily decrease.
In 2018, the top 1% earned 20-21% of the national income. while the bottom 50% earned 12-13% of it.
Comparing the wealth held by the top 10% of households to the wealth held by the bottom 90%, we see that in the last 30 years, the top 10% of households steadily increased their share of the total US household wealth from 60% to 70%, while the bottom 90% saw their share of it steadily decrease from 40% to 30%.
For the bottom 50% of US households, there was no increase in wealth in the last 30 years.
In 1973, the United States decided to abandon the Bretton Woods Agreements, closing the gold window so that foreign governments could no longer exchange their dollars for gold. From that moment, the US dollar and gold could be converted into each other only on the open market.
That year saw the beginning of an unprecedented increase in income growth for the top 1% of earners until after 2010, while in the same period, the income of the bottom 90% slightly decreased.
3. Goldman Sachs: Central Banks Gobble Up 20% of Global Gold Supply
According to an analyst at Goldman Sachs, central banks are buying 20% of the global supply of gold, signalling a shift away from the dollar as the world reserve currency and making a powerful case for gold investing.
Jeff Currie, the head of global commodities research at Goldman, notes that gold demand from central banks has never again been as high as it was in the Nixon era. Says Currie, “I am going to like gold better than bonds because the bonds won’t reflect that de-dollarization.”
4. Mongolia’s Central Bank Buys 14 Tons of Gold in First 11 Months This Year
As reported by the Chinese news agency Xinhua, Mongolia’s central bank announced that it has bought 14 tons of gold from legal entities and individuals in the first 11 months of this year.
As of 5 November 2019, year-to-day net gold purchases from central banks (almost 550 metric tonnes) were 12% higher than in 2018.