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A Simple Guide to the Most Important Subject You Never Learned In School, What Our Money Is, Its History, and an Analysis of a Failing System.

ECB Preemptively Backstops Assets

This morning the ECB has essentially decided they are going to increase QE as a preemptive move due to a historically period of low liquidity.

"(We are aware) of seasonal patterns in fixed-income market activity with the traditional holiday period from mid-July to August characterized by notably lower market liquidity," An ECB official said.

Adjusting the amount of money being created to buy assets due to the fear of a lack of buyers, lower market liquidity, smacks of desperation.   

Central banks have gone from being data dependent, to implicitly market driven, to giving equity and bond holders an explicit guarantee that they will preemptively backstop their assets.  This is one of the worst examples of moral hazard I have seen in recent years, and that's saying a lot. 

If Thomas Piketty would like to determine the reason for increasing wealth inequality, he may want to look at the central banks handing money to the rich before an inherent flaw in capitalism, r<g.

As many have explained, newly created money through QE gains its value from all other money in circulation.  This value is held by rich, poor, and middle class alike presently through savings, and in the future through income. Through QE this value is transferred to asset owners, primarily the rich. 

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