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‘Dependency’ And A Magically Shrinking Free Float
Regular readers know credit market liquidity is a favorite topic of ours.
As more than a few folks have noted, the combination of central bank largesse and the proliferation of HFTs has likely had a deleterious effect on liquidity across markets. Of course those two developments (the dawn of the NIRP/ZIRP/QE era and the rise of the machines) have progressed in tandem and therefore, it's reasonable to assume that all else equal, markets are far less liquid than they once were. Throw in the post-
I guess the question one is left with goes something like this: what exactly are we doing, as a society (so that includes governments and corporations across developed economies), when we simply print money to buy debt we just issued from ourselves? Thanks H, you guys have been pounding this drum and I for one love it. Please continue every way possible to drum this into our financial discourse as nothing is more important. Your work is greatly appreciated by many, we have to have purpose and dignity for our country and planet. Again thank you guys so very much. This is our future and it is not good, please send it on if you can.
http://nca2014.globalchange.gov/highlights/overview/overview
H, when my wife asks a why question like that “what exactly are we doing when….”, I suggest to her to go back and think of possible reasons. This does necessarily not sit well with her. Her question more often is moral in nature, meaning “isn’t scandalous that….”.
However since we pay you to have deep thoughts it could be interesting to have you attempt to answer your own question.
I’ll throw out a guess, “keep the torch-bearing mobs at bay”. Or “A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury” — Elmer T. Peterson 1951, heavily paraphrased from Tytler, Lord Woodhouselee, Alexander Fraser (1854) per Wikiquote.
And actually come to think of it I’ve been pondering a related question/answer: “why would these entities bother unwinding the balance sheets?” For example the BOJ, are they not collecting dividends on their holdings? Where does that money go? The SNB holding AAPL, I guess they collect the dividend and have a paper gain, where does that money go? How do they account for it?