Posted on 03/26/2014 7:44:24 AM PDT by blam
KOO: The US Is In A 'QE Trap' And Both The Markets And The Media Are Missing It
Joe Weisenthal
Mar. 26, 2014, 4:48 AM
Nomura economist Richard Koo is out with his first comments since Janet Yellen's first FOMC meeting last week.
Remember, Yellen briefly spooked markets with what some perceived to be a hawkish tone, mostly owing to the specificity with which she talked about the timing of the first rate hike.
According to Koo, the US is in a "QE Trap" and both the market and the media are missing it. This trap, he says, explains the hawkish bent.
The argument is essentially that risks of very hot inflation are much higher now than they would be if we were coming out of a normal slump that didn't require QE. But because we did QE, and there are all these excess reserves in the system, the potential for very rapid loan growth and very hot inflation are now significant, and thus the Fed has no choice but to be more hawkish than it otherwise would be at this stage in the recovery.
This is a contrarian stance that's not in line with most thinking, but then Koo rarely is.
Markets and media unaware that US is in QE trap
Nevertheless, it was easy enough to predict that the Fed would have to move in this direction when it began normalizing policy after years of quantitative easing. The media’s criticism of her dialog with the market and market participants’ complaints about the lack of further accommodation tells us that most of them have yet to realize the US economy has fallen into the QE trap.
(snip)
(Excerpt) Read more at businessinsider.com ...
No, they are IGNORING IT.
No, they created it on purpose.
I don’t care if the markets are spooked, or if they get spooked. Somewhere, sometime there has to be some sanity applied to this debacle.
Or they’re pushing the problem down the road because of upcoming elections.
I would say so. When productivity is dependent upon borrowing from the future, it is a recipe for disaster.
But it will turn the $100 trillion of unfunded liabilities into a cool quadrillion dollars of debt. Inflation only "cures" debt if you aren't incurring more and more, but if you have the fiscal dicipline to maintain a balanced budget you don't need to resort to hyperinflation to erase your debts.
High EBT use has to factor into the rising price of food. Retailers can charge what they want when half of the customer base is walking in with a preloaded debit card. Folks like me are chumps for paying cash for food.
I’m glad we took steps to refi at 4% even though we’ve had to undergo a public anal exam to do it....
I would say the trap is permanent. Everytime they start to tighten the market will sink and then they will have to loosen up again. Its going to be perpetual QE until we finally crash our currency.
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