Or, how investors are trapped by rich assets. Charted by Credit Suisse, do click to enlarge:
Tbf, the point seems valid — namely that “the underpinnings of high asset prices are insufficient compensation for drawdown risk” and that means a form of stasis kicks in which threatens the effectiveness of QE.
It’s something we’ve heard quite a bit about already in one form or another — QE infinity/ trap folks, from Gallo to Koo.
And speaking of Gallo, this paragraph (along with his chart showing a way out) might be worth repeating:
… The third consequence of QE infinity would be growing social side-effects and political unrest. Even though QE and low rates have helped to maintain confidence and avoid a worst case scenario during the crisis, their prolonged use can result in increased inequality, a side-effect against which currently, there’s no monetary policy remedy, as ECB Vice-President argued a few weeks ago. Without other policies in play, low interest rates and QE may over time boost inequality and favour a polarisation of politics – a phenomenon we have seen rising in Europe over the past few years.
It’s a reminder too that when taking QE’s side in an argument you will want to have your counterfactuals very much to hand.
