Central Banks Too Busy To Buy Bonds

September must be Diversity Training Month at the world’s central banks because they seem to have taken the month off.

This month the ECB, the BoJ and the Fed all announced big splashy bond-buying programs.. The ECB announced “unlimited” Outright Monetary Transactions to buy the bonds of compliant governments. The BoJ announced a Y10 trillion increase in its JGB Asset Purchase Program. The Fed announced its open-ended QE3+, wherein it would buy mortgage and agency bonds until its full employment mandate was fulfilled.

These announcements, coming at the same time, pushed equity markets up around the world. Now the markets are falling back, and some pundits are already calling the exercises a failure. Let's look at the facts..

We start with the inscrutable Japanese. On the 19th the BoJ announced that it would add another Y10 trillion ($100B) to its existing Y70 ($700B) trillion APP. Two observations: (1) twenty years of BoJ failure have shown that incremental purchases accomplish nothing; and (2) the BoJ’s recent announcement is meaningless. It merely continues the bank’s existing QE program, which is tiny compared to other countries and which has--surprise!--not worked.