Kiwi Busted QE And Its Relation To The Reflation Story

MR. FISHER. In summary, I want to mention that, as I said earlier, most of these variations that have been suggested are very un-Bagehot-like. And what I mean by that is, twisting [or QE and yield caps] entails purchasing assets that investors are fleeing toward, not assets that they are fleeing from. [emphasis added]

This is no mere trivia, figuring out who, what, and, most important of all, how bond yields and interest rates are actually determined therefore what they really mean means the whole ballgame – that part the central bankers got right. What they get wrong is, basically, everything else. Who: market; What: rising not falling liquidity risk; How: things like repo and global money.

The central bank and its QE’s are pure fiction; a puppet show for your amusement to distract you (and everyone else) from the fact there’s no real money in monetary policy. Furthermore, it is the market driving down market interest rates that proves this point!

The interest rate fallacy may be the closest thing to immutable truth what little of value is left of Economics.

Choosing RBNZ’s choice words on the QE matter wasn’t random on my part. Earlier today (h/t Zerohedge), the country’s central bank published details of its latest LSAP transactions which included a very “busted” operation; the bank declared its intention to buy NZ$ 120 million government bonds (April 2025) from domestic banks only to find NZ$92 million in offers, of which only NZ$ 52 million were accepted.

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You’d think a “busted” QE might allude to exploding yields in New Zealand’s government debt market, but quite the opposite. Rates across that country’s curve plummeted in today’s trading. They’ve been moving lower for weeks.

Yet, according to the mainstream, conventional view, this is where QE is supposed to show its true value. For several months now, yields in NZ like those around the world have been gripped by reflationary optimism – which each global central bank is forced to mischaracterize by its determination to hold steady to the QE theory that gets everything backward.

So, conventional thinking, rising rates, and QE are right now in NZ needed most to keep them in check otherwise they spoil the recovery. In this case, however, QE is demonstrably superfluous because the market has been buying and doing this for several weeks already – to the point that, in one operation, banks don’t want to sell to the central bank. They’d rather keep the assets for their own purposes. Even inflation-ist Richard Fisher understood this. 

While a worthwhile review to further expose these QE fallacies, there’s more to it; a lot more potentially. New Zealand, like Australia and other parts of Oceania, is tied closely to the fortunes of the Chinese economy. What we find of interest rates in NZ is similar to the currency’s recent tendencies; reflationary for several months, but noticeably less so recently (since February 25).

More than that, when you look at the longer-term (and even short run) chart of NZD against the US$, it should seem very familiar.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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