In One Powerful Paragraph, Richard Koo Explains How The Fed Is Causing Bubbles – Business Insider 11-27-13

Salient to Investors:

Richard Koo at Nomura said:

  • Mini-bubbles can occur during a balance sheet recession, like this one. Not yet seeing a big bubble, but concerned about mini bubbles.
  • In a monetary policy-driven market, money created by an accommodative central bank typically spreads throughout the economy and lifts markets. During a balance sheet recession, the private sector is a net saver, so only the financial sector is flooded with funds that are generated by private sector saving and deleveraging.
  • Cheaper money does not work when nobody wants to take on debt.
  • The US private sector is still more inclined to save than take on debt, so monetary policy is impotent to stimulate the economy.
  • In the absence of the desire to spend or invest in real things, the Fed’s cheap money can and will create financial bubbles.

Read the full article at http://www.businessinsider.com/richard-koo-on-bubbles-in-a-balance-sheet-recession-2013-11?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29

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