In response to an FT article by Kate Allen and George Parker on 18th April 2016, entitled 'Osborne taunts opponents with trump card'
“Name one…serious financial institution which thinks a vote to leave on June 23 is a good idea for the UK,” said Mr. Osborne.
On it’s own merits, that’s hardly a selling point. The 'serious' financial institutions are the same geniuses who, amongst other things: failed to see the housing bubble or the financial crisis; went cap in hand to the taxpayer before awarding themselves bonuses for nothing more substantial than sucking air; who justified trillions of dollars of QE with ridiculous concepts like ‘trickle down’ and the ‘wealth effect’; who are currently oblivious to the deflationary effects of negative interest rates; who revere a generation of academics with no experience of anything other than ‘teaching’ and ‘government’ - people who would struggle to find their own noses in a fog.
A fellow reader replied:
Couple of things.
"justified trillions of dollars of QE with ridiculous concepts like ‘trickle down’ and the ‘wealth effect’; who are currently oblivious to the deflationary effects of negative interest rates"
1) The justification for QE had absolutely nothing to do with 'trickle down' or the the 'wealth effect'. It was a measure to boost liquidity in the financial sector.
2) The reason people are "oblivious to the deflationary effects of negative interest rates" is because there is not enough reason to believe that it is deflationary. Conventional thinking would suggest totally the opposite - that it will spur inflation. Suggestions that it's deflationary usually relies on the psychological effect negative rates have on confidence, which is a tenuous link at best.
You're right that QE was for liquidity and the bank's balance sheets. My point is that Dr Bernanke used the 'wealth effect' to justify his actions on many occasions, particularly from 2010 onwards. Richard Fisher has even stated this on CNBC on January 5th when he admitted that the Fed had front loaded the stock market to create a wealth effect. This interview is available on YouTube - I won't give the link because it may activate the 'pending' bot.
On the deflationary effects of NIRP, again you're right that 'conventional' thinking suggests the opposite. Personally, I think the conventional position will be proven wrong - as do, I suspect, the BIS, who are making a lot of critical noises without coming flat out yet.
I think that time will show that the psychological effects of NIRP are very powerful - the central banks have been running what is essentially a 'confidence game' or as I prefer to call it - a 'con'. But ultimately, I think they will lose all credibility.