Why are central banks buying equities outright and trading futures? Very simple – EURO CRISIS! I have reported that central banks have been buying equities because there is a real crisis underway in central bank reserves. Behind the curtain, they need diversity because the Euro Crisis has creates a Reserve Crisis. There is no real alternative to the US dollar because of the faulty design in the Euro. Even the Chinese Yuan has surpassed the euro as a trade currency.
The dollar has become the world currency by default. The idea that the euro would displace the dollar was the typical mantra or people who do not understand the first thing about currency. The structure of the Euro stood no chance of displacing the dollar nor does the Japanese yen or the the Chinese Yuan. Until we eliminate government debt, sorry – but the dollar is the only alternative. The US debt provides the foundation for the world economy to park money. If we eliminate the ability for governments to borrow, then we can return to the original design of the Federal Reserve. To stimulate the economy it would buy corporate paper. When WWI began, the US government ordered the Fed to buy government paper. That was never reversed. Today they hand bankers billions in hope they will lend to business but they have been trading. Central banks have been transformed into entities that are incapable of dealing with the economy because everything they do is indirect. They control noting. It is all an illusion and the press maintains that illusion for the ownership of the press are pursuing their politically correct self-interest..
Here is where equities come into play. The central banks realize they are screwed they can only bailout corrupt banks or buy government paper destined to default. Talk about doom and gloom. The collapse of the Euro and the Japanese yen leaves no appreciable alternative for central bank reserves. The USA cannot expand its debt fast enough to supply the entire world economy as the Euro Crisis continues and Japan melts-down. Hence, the central banks are diversifying into PRIVATE assets. They have ZERO alternatives.
This is part of the rally in equities we have been warning about. This also can be the cause of a Phase Transition that takes the Dow to the 40,000 level once we begin to see national bankruptcies. Big money needs an outlet. Individuals can buy gold coins and hide them in you sock drawer. Big money cannot be bothered with tangible physical assets. They need electronic these days.
So hold on to your hat. This ride is by no means over yet. It is just starting to get interesting
