Speaking at a panel in the Milken conference titled “Monetary Policy: Out Of Ammunition” moments ago Pimco’s global economic advisor Joachim Fels, formerly of Morgan Stanley and Goldman Sachs, had a few observations on QE vs NIRP, not surprisingly nudging central banks that explicitly central bank buying, i.e., QE, is far more powerful than the implicit deflationary signal which is NIRP.
- FELS: QE IS A MORE POWERFUL TOOL THAN NEGATIVE RATES
He then proceeded to point out the obvious;
- FELS: PROBLEM IS INFLATION IS TOO LOW
By which he was of course referring to wages; as we showed recently rent inflation is currently running at a record 8% Y/Y (ignoring the double digit increases in health insurance costs).
He then had some more big picture ideas of how the world can get rid of its excess debt: central banks should just buy it all up and then “cancel it” (of course by doing so they would also cancel the offsetting balance sheet entry which is bank reserves which also happen to prop up global capital markets).
- FELS: TO ERASE DEBT, CANCEL IT ON CENTRAL BANK BALANCE SHEET
And finally, he hinted what he, and/or Pimco, would prefer that the Fed should buy next. Stocks.
- FELS: QE SHOULD FOCUS ON CREDIT AND POTENTIALLY EQUITY BUYING
What he did not note is that by the time it’s all over, central banks will be buying not just credit and equities, but virtually every asset class, both directly and indirectly through helicopter money. That said, we prefer that “other” proposal by Pimco’s Harley Bassman from two weeks ago, according to which the Fed should monetize gold to a price of about $5,000 to “shock” inflation expectations higher. However, somehow we doubt if given the option of buying gold or stocks (directly as opposed to through Citadel), the Fed will pick the former.
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