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If QE seems to have turned into irreversible and the economy even needs a QE4, does that not point to something not going right?

Wednesday, February 20, 2019 12:05

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Sir, Michael Howell writes:“Modern financial systems have grown dependent on huge central bank balance sheets… our concern today is a growing shortage of central bank liquidity caused by the deliberate unwinding of the QE policies put in place to replace the private sector funding that evaporated in 2007-08” “Liquidity drain will force central banks towards ‘QE4’” February 20.

What does this mean? That ever growing central bank balance sheets are now to be a standard feature in our economy? If QEs is to replace private sector funding, are we not heading into central bank statism?

What has QEs achieved? Because of the risk weighted capital requirements, the liquidity injected has resulted in way too little financing of the “riskier” future (entrepreneurs) weakening the real economy; and too much to the “safer” present (mortgages, buybacks, AAA rated securities and public debt) creating bubbles.

If it comes down to a QE4 let’s pray regulators admit their mistake and throw out forever the idiotic risk weighting.

Idiotic? Yes, consider the following tail risks.

The best, that which perceived as very risky turning out to be very safe.

The worst, that which perceived as very safe turning out to be very risky.

And the risk weighted capital requirements for banks kills the best and puts the worst on steroids… dooming us to suffer an weakened economy as well as an especially severe bank crisis, resulting from especially large exposures, to what was especially perceived as safe, against especially little capital.

PS. Here is a current summary of why I know the risk weighted capital requirements for banks, is utter and dangerous nonsense.

@PerKurowski

Source: http://teawithft.blogspot.com/2019/02/if-qe-seems-to-have-turned-into.html

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