The cost(?) of easy money

While the Fed may have delayed the severity of the effects from the great recession, one would think that the layover does not come without a cost. For the time being, though, it seems to be an afterthought. At the moment, some corporate eurobonds are trading at negative yields, meaning that you, as a lender, are being fined for lending them your money. Much like the Treasury Bills in the back end of 1932, investors gladly forking over cash for the privelege to have it confiscated.

While the Fed is letting it’s $4.5 Trillion Balance Sheet melt, the European Central Bank is in the process of walking on eggshells-it is now their turn to turn down the heat. With their decision to slow the growth of their similarly sized balance sheet, they could rock the boat in Europe and abroad. Their problem is different as they are running out of bonds to buy. That tells you something interesting. If they are running out of bonds to buy, what happens when they all of a sudden have no interest in riding the bid?

Over in Japan the ETF buying BOJ is leading that pack at over $5T. None of these major countries are experiencing rising prices that would be expected from this flood of capital. The bill has yet to come to the table. While it could be a slow and arduous process, rather than all out mayhem, what is clear is that assets have followed the path upward with central bank assets. What they choose to do when the music stops is another story.