Heisenberg on ECB QE

note: if you are unfamilar with the terms above, you probably will want to skip this post

There are two points in the excellent post that I found worth making a mental note.

First, quote:

“But beyond that, BofA’s Barnaby Martin notes that one “overlooked” aspect of QE is the way in which it “‘transforms’ sovereign debt-to-GDP ratios by moving bonds from risk-averse investors towards more risk-tolerant central banks”.

Central banks are actually sequestering fixed rate risk. That surely makes it easier for investors to stretch out their risk beyond what under non-QE times would be irrational.

Second quote: (my bold)

“Indeed, the ultimate manifestation of new era stimulus (MMT) requires close coordination between fiscal and monetary policy, something Stephanie Kelton will be more than happy to tell you all about. Additionally, Martin describes central banks as “buy-and-hold”, which pretty much by definition means these asset purchases are arm’s length deficit financing, one step removed from MMT. (He doesn’t say that, nor does he advocate for it, we’re just doing some common sense extrapolating.)”

It seems politicians have been spineless to make the needed fiscal policy decisions and debt financing needs exceeded traditional methods … so put in some QE and you get a) ‘off the Treasury books debt financing’ and a risk floor for both investors and politicians. Sounds fishy to me and one has to ask just how stable this would be with another major global financial uh oh? … CB folks have a tough row to hoe.

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