SocGen: “Are We Just Prisoners Here, Of Our Own QE?”

Wednesday, July 5, 2017
By Paul Martin

by Tyler Durden
ZeroHedge.com
Jul 5, 2017

In the aftermath of recent hawkish jawboning by central bankers around the globe, and especially FOMC members who now appear set to hike even if only to just spite momentum chasing market algos by “shocking” easy liquidity conditions in tightening as Goldman suggested in May, SocGen’s Kit Juckes asks a more existential question: channeling the eagles he wonder if we “Are we just prisoners here, of our own QE?” and points out that as a result of the $15 trillion in CB liquidity injections, the US is “sort of” stuck in a 1990s-style Japanese “lost decade” and the impact on the global economy has been minimal yet “we’ve all seen the political consequences.” As a result, he blasts any idea that the ECB will be able to exit its own “Hotel California” any time soon if ever:

I meet a lot of people while I talk to clients who think the ECB simply won’t be able to escape its current policy setting because a stronger currency is too damaging. I think they’ll try, both to contain the currency, and to exit QE, because pressure within the ECN demands it, and practicality demands that they slow down.

Luckily, thanks to Bullard’s guidance from last week, we already know that when the exit attempt fails, and leads to a sever recession, the Fed and central banks will have no choice but to unleash even more QE, and so back to square one.

Here is the key excerpt from his morning note:

I was tidying up at home and ran into a copy of International Economy from the summer of 2009, which featured 31 interviews of economists answering the question ‘is America economically headed for a 1990s-style Japanese “lost decade” of stagnant growth?’ I thought the best observations were that the US entered the current cycle with a savings rate that was far too low (Bacon), and that a zero interest rate equilibrium isn’t conducive to innovation (Mann). The answer 8 years on though, is ‘sort of’. GDP growth has averaged 2%, ¾% per annum slower than in 2000-2007, and real wages have grown by 0.6% per annum, compared to 1.3% in the earlier period. We’ve all see the political consequences.

The Rest…HERE

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