The Awesome Science of Chinonomics

"One more round of QE  please. The world economy needs it. I am feeling the withdrawal." That is the market's plea to our MIT-trained monetary Dictator . The market's starvation for the much-needed next QE fix seems to be creating a never-ending game. "The market needs more accommodating monetary policy. We can't allow deflation to set in", the rational goes. The terror of deflation drives Central Bankers around the world into competitive devaluations, pushing everybody else into a self-accelerating monetary easing race that precipitates a monetary flood of epic proportions. USD $2.3 trillion in the United States. GBP £375 billion  in Great Britain. EUR €1.0 trillion in Europe via the ECB's LTRO , just to name a few significant examples. Central Banks around the world are forcibly participating in a game of one-upmanship , the likes of which we have never seen . Central Banks Balance Sheet size has almost tripled in 6 years. Graph by James Bi...

Being called a chicken is never a good thing. You get called that in the schoolyard and the most likely thing to happen next is to hear humiliating laughs of the other mean kids. A movie character loses a game of “chicken”, and he is most likely losing the girl. That game has even been studied by game and signaling theory.    The whole mess in Europe could be reduced to a game of chicken. Here, there are two cars being driven against each other, challenging each other not to veer to the side. One car is driven by Mario Draghi, the other one by the bond vigilantes (or speculators, as Europe’s politicians like to call them). Signaling is paramount. Mario Draghi resists to monetize, and signals that the ECB will not openly use its balance sheet without restrictions to push sovereign rates down. The reason? The ECB –always mindful of its standing as a hawkish institution known as protector of the value of the Euro - risks denting its reputation of independence, which for...