In response to an FT Blog by Gavyn Davies on 27th September 2015, entitled 'What if the Fed is wrong?'
"Furthermore, a political backlash is beginning to get off the ground. QE is now widely seen as helping holders of financial assets – the rich – and the banking sector"
'Widely seen?' I would have thought that particular fencepost must be getting uncomfortable by now, but alas it still seems to be firmly wedged in the bottom line thinking of central planners..."the majority of today’s central bankers still firmly believe in it"
Stop sparing their egos Mr Davies. They are in denial. It's no easy matter to stop believing in the tooth fairy when you've spent thirty years trying to build a spreadsheet that proves she exists, you've won prizes for describing her vital statistics, and if it turns out that she doesn't exist you've got to come to terms with the reality that you've been flogging snake oil for the past six years, and your understanding of the real economy is bunkum.
QE DOES help the holders of financial assets and the banks and it DOESN'T trickle down. It does nothing to fix our structural problems and it encourages politicians to stay in denial along with the central bankers and Wall Street. QE is not a cure - it's a drug.
In response to another reader who suggested that QE is necessary to prevent deflation, and because there is no inflation anywhere:
No inflation anywhere? Stock prices are inflated, bond prices are inflated, real estate prices are inflated, the price of art and other collectibles are inflated. When the air comes out of these bubbles, which it is beginning to do now, the effect of asset price deflation will not just wipe the smile off their immediate owners faces - it will undermine asset values being used as collateral for trillions of dollars of other 'assets'. In short - margin calls and contagion. Or, as Warren Buffet and Charlie Munger like to say, 'when the tide goes out you find out who's been swimming naked'.
Many of the people swimming naked are sovereigns. Much of their debt will be destabilised by the unwinding of the carry trade - there are some $9 trillion dollars overseas, dollars that were borrowed cheaply when the dollar was low, and invested when emerging market economies were high. This has reversed, and the slowdown in China has had a 'double whammy' impact on emerging markets, who are the suppliers of China's commodities.
QE has delayed, and will eventually prove to have deepened, the deflation that started in 2008. Deflation is on its way, and QE4 is on its way, probably in the form of helicopter money. The mess that is coming will make 2008 look like a pre-shock.