End of Central Bank Easing Will Trigger Financial Crisis

[Ross]

Should we continue to listen to the propaganda of Feel Good Stories that tell only the Feel Good parts of the Stories?

Economist Roche: End of Central Bank Easing Will Trigger Financial Crisis

Friday, 10 May 2013 08:01 AM

By Dan Weil

When central banks across the world finally stop easing, a financial crisis will ensue, says David Roche, president of research firm Independent Strategy.

"Yes it [a financial crisis] will happen, and yes, it will be bigger [than the credit crisis of 2008-09]," he tells CNBC. "Once you re-price the burden of the world's debt, . . . the ugly truth will be revealed."

All the easing has helped push 10-year Treasury yields down to 1.81 percent, 10-year German government bonds down to 1.30 percent and 10-year U.K. government bond yields down to 1.85 percent as well Friday.

But once central banks cut off the gravy train, buying will dry up in a hurry in those markets, Roche says. And that's a major problem.

"As long as the central bankers print money, . . . the yields won't go up, and the day they stop, the yields will go up by so much we will have a financial crisis on our hands," he notes.

"You are looking at a massive capital loss on a mark-to-market basis for a lot of financial institutions in the world and for people who have put their savings into those bonds," Roche explains.

"[That] will hit demand and hit the real economy, because if wealth goes down people's optimism about the world economy will fade."

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