All You Need to Know

Rain keeps falling
Rain keeps falling
Down, down, down, down
--Simple Minds

This report provides a nice sense of where we stand w.r.t. monetization. In particular, it shows just how active central banks have been during the CV19 period. We'll focus on a couple of the charts here.

Since early 2020, the four central banks pictured above have monetized over $10 trillion in securities, meaning that they have created $10 trillion out of thin air to purchase the financial assets that have been added to their balance sheets during the period. The Fed and ECB have been the largest money printers at about $4 trillion apiece in square wave fashion with the onset of the pandemic. The BOJ and PBOC have kicked in another $3 trillion over that time, although their contribution reflects more of a continuation of longer term monetization policy.

The obvious question is why haven't we seen the effects of this in goods and service prices? The quick answer is that we might be. Surveying the WSJ headlines, I am finding increased reference to higher prices both upstream and downstream in supply chains.

The longer answer is that it may take time for large chunks of this money to make it into the hands of consumers. The first users are financial firms, as they are the direct recipients of freshly minted cash when central banks lift bonds and other securities from dealer inventories.

And there can be little doubt that these firms are using this cash to bid prices of financial assets. Indeed, if you're trying to explain why stocks are currently hitting all time highs and have been since the onset of QE a decade ago, relationship portrayed in the above graph is essentially all you need to know.