London Analyst: Financial System on a Hair-Trigger: Everyone Knows that Crisis Could Break Out at Any Time!
Everyone knew that the Fed was going to reach this point of no return — where it is just as dangerously risky to turn back as to go forward — on its QE policy, but the Fed policymakers have certainly been unexpectedly slow in even realizing just how bad a dilemma they are in, a veteran City of London financial analyst told EIR Friday. The markets are going to “punish” Bernanke if he pushes on with QE, because it is now so obvious that money pumping is the only thing keeping things going, but will also certainly fall rapidly if he starts to turn off the faucets. Bernanke is stuck, whatever he does. He might hope that distractions and some extremely ambiguous wording of his intentions will get him through the next weeks or so, but he has nothing else.
What is most interesting about the current situation, is how incredibly sensitive the financial mood is to even the slightest movements, such as in the bond markets — because the general fear of what is lurking just below the surface in the world economy is so great. Recent shifts in the bond and equity markets are on a much smaller scale than what occurred last year and the year before, but the international reactions have been much more extreme.
The reactions over recent weeks to the Bank of Japan announcement on April 4 that they would be doubling the monetary base, is an example. This wasn’t really any significant qualitative shift in policy, but, 2-3 days later, it shook up global investors as they began to confront the reality that the Fed had been tripling the money supply all along, and panic set in about the enormous scale of liquidity.
Tensions will rise fast in Europe again, as Greece will require more financial aid soon, and the blazing row between the IMF and EU about the disastrous consequences for Greece of this effort to save the euro at all costs, shows how deep the dissension goes. One key political battleground is in the upcoming elections in Germany, but whatever happens there, there is going to be a real “hot October” in Europe.