search.noResults

search.searching

dataCollection.invalidEmail
note.createNoteMessage

search.noResults

search.searching

orderForm.title

orderForm.productCode
orderForm.description
orderForm.quantity
orderForm.itemPrice
orderForm.price
orderForm.totalPrice
orderForm.deliveryDetails.billingAddress
orderForm.deliveryDetails.deliveryAddress
orderForm.noItems
THE REVERSAL OF QE IS JUST AS POWERFUL A POLICY TOOL AS ITS INSTIGATION, THOUGH NOT NECESSARILY WITH SYMMETRICAL RESULTS.


Then-Fed Chair, Janet Yellen, made reference to the power of the balance sheet in January 2017 – before any reduction had occurred – when she cited an academic study in a footnote to a speech. The study found that the natural shortening in the duration of Fed holdings over the course of 2017 would equate to two 25bps rate increases, all else being equal.


  its calculation. Nonetheless, the link to the more traditional use of fed funds rate policy had been made, and it highlights just how much further the US has progressed along this path when compared to other economies around the world; having peaked at $4.516tn (25.7% of GDP), the Fed’s balance sheet now stands at approximately $3.97tn (19.4% of GDP). Jerome Powell announced following the FOMC’s March meeting that the pace of balance sheet reduction would begin to taper from May and cease completely by September this year. This implies that, for now, we can expect the size of the balance sheet to settle at approximately $3.5tn (17% of GDP).


The Fed’s echo chamber is, needless to say, somewhat larger than the US economy alone. Indeed, for the developed economies, ECB, BoJ, and BoE policy decisions traverse borders blurred by the relatively free movement of goods, people and, most importantly, capital. It is through this prism that we view the bigger picture, and note that the global stock of QE-derived assets on central bank balance sheets is still growing, albeit now only slightly – a considerable crosswind the Fed must take into account while plotting its own policy course.


Another consequence of this cross-border  operations; looking past the easier to detect rise of both conventional and unconventional investments,   low-cost, low-regulation developing economies.


Countries are at least able to insulate themselves to  US in its ongoing trade talks with China is one such example. The lines are more blurred closer to home in the UK however, where only recently the government  to zero in the case of a ‘No Deal’ Brexit.


Some market participants have linked 2018’s stock market turbulence and the Fed’s tightening of policy. While this can be the subject of debate for another time, what is perhaps more notable is the sharp recovery that has been seen in stock markets since the peak of the malaise in December, and China’s record amounts of liquidity injections in the same time period.


China uses a variety of liquidity controls to ease or tighten monetary policy – the repurchase or reverse-repurchase of short term company debt and a medium-term lending facility are perhaps most  The $2.96tn increase in global M2 money supply (as measured by Bloomberg) since December can largely  line is that short-term easing was required to address poor liquidity at the height of tax-return season and the Chinese New Year holiday period. Others could instead have pointed to a less sanguine Chinese economic outlook. Nevertheless, the Shenzen CSI 300 stock index has gained some 28% YTD, and risk assets around the world are being lifted by the warmer sentiment.


With this seeming disconnect between asset prices and their intrinsic values, I conclude with a return to Caruana’s remarks in 2014:


 frequent or intense, private and public debts continue to grow, the economy fails to climb onto a stronger  run out of ammunition. Over time, policies lose their  conditions they seek to prevent.”


The major economies of the world are indebted to QE. Future historians will have to establish how to interpret 


Colin Bysouth E: colin.bysouth@admisi.com


15 | ADMISI - The Ghost In The Machine | March/April 2019


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40